1933 Act No. 33-83100
1940 Act No. 811-8716
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 13 [X]
EVERGREEN VARIABLE ANNUITY TRUST
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 10
TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 10 to Registrant's Registration
Statement No. 33-83100/811-8716 consists of the following pages, items of
information and documents:
The Facing Sheet
The Contents Page
PART A
------
Prospectus for Evergreen VA Aggressive Growth Fund,
Evergreen VA Fund, Evergreen VA Foundation Fund, Evergreen Global
Leaders Fund, Evergreen VA Growth and Income Fund, Evergreen VA
International Growth Fund, Evergreen VA Masters Fund, Evergreen VA
Small Cap Value Fund and Evergreen VA Strategic
Income Fund is contained herein.
PART B
------
Statement of Additional Information for Evergreen VA Aggressive
Growth Fund, Evergreen VA Fund, Evergreen VA Foundation Fund,
Evergreen Global Leaders Fund, Evergreen VA Growth and Income Fund,
Evergreen VA International Growth Fund, Evergreen VA Masters Fund,
Evergreen VA Small Cap Value Fund and Evergreen VA Strategic
Income Fund is contained herein.
PART C
------
Financial Statements
Exhibits
Number of Holders of Securities
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART A
PROSPECTUS
<PAGE>
Evergreen Variable Annuity Trust
Evergreen VA Aggressive Growth Fund
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Growth and Income Fund
Evergreen VA International Growth Fund
Evergreen VA Masters Fund
Evergreen VA Small Cap Value Fund
Evergreen VA Strategic Income Fund
Prospectus, May 1, 1999
The Securities and Exchange Commission has not determined that the information
in this prospectus is accurate or complete, nor has it approved or disapproved
these securities. Anyone who tells you otherwise is committing a crime.
<PAGE>
FUND SUMMARIES: In general, Funds included in
Evergreen VA Aggressive Growth this prospectus seek to provide
Fund 2 investors with a selection of
Evergreen VA Fund 4 investment alternatives which
Evergreen VA Foundation Fund 6 seek to provide capital growth,
Evergreen VA Global Leaders income and diversification.
Fund 8 Shares of the Funds are sold
Evergreen VA Growth and only to separate accounts
Income Fund 10 funding variable annuity
Evergreen VA International contracts and variable life
Growth Fund 12 insurance policies issued by
Evergreen VA Masters Fund 14 life insurance companies. For
Evergreen VA Small Cap Equity further information about these
Income Fund (formerly contracts and policies, please
Evergreen Small Cap Value see the separate prospectuses
Fund) 16 issued by the participating life
Evergreen VA Strategic Income insurance companies.
Fund 18
GENERAL INFORMATION: Fund Summaries Key
The Funds' Investment Each Fund's summary is organized
Advisors 20 around the following basic
The Funds' Portfolio Managers 21 topics and questions:
Calculating the Share Price 22
Participating Insurance INVESTMENT GOAL
Companies 22 What is the Fund's financial
How to Buy and Redeem Shares 22 objective? You can find
Other Services 23 clarification on how the Fund
The Tax Consequences of seeks to achieve its objective
Investing in the Funds 23 by looking at the Fund's
Fees and Expenses of the strategy and investment
Funds 23 policies. The Fund's Board of
Financial Highlights 25 Trustees can change the
investment objective without a
Other Fund Practices 29 shareholder vote.
INVESTMENT STRATEGY
How does the Fund go about
trying to meet its goals? What
types of investments does it
contain? What style of investing
and investment philosophy does
it follow? Does it have limits
on the amount invested in any
particular type of security?
RISK FACTORS
What are the specific risks for
an investor in the Fund?
PERFORMANCE
How well has the Fund performed
in the past year? The past five years?
The past ten years? Since inception?
<PAGE>
OVERVIEW
Variable
Annuity Funds
Shares of the Funds are sold Interest Rate Risk
only to separate accounts When interest rates go up, the
funding variable annuity value of debt securities tends
contracts and variable life to fall. If your Fund invests a
insurance policies issued by significant portion of its
life insurance companies. portfolio in debt securities or
Evergreen Variable Annuity Funds dividend-paying stocks and interest rates
seek to provide investors with a rise, then the value of and total return
selection of investment earned on your investment may
alternatives which seek to decline. When interest rates go
provide capital growth, income down, interest earned by your
and diversification. Fund on its investments may also
decline, which could cause the
Following this overview, you Fund to reduce the dividends it
will find information on each pays.
Variable Annuity Fund's specific
investment strategies and risks. Credit Risk
The value of a debt security is
Risk Factors For All Mutual directly affected by the issuer's ability
Funds to repay principal and pay interest
Please remember that mutual fund on time. If your Fund invests in
shares are: debt securities, then the value
- not guaranteed to achieve of and total return earned on
their goal your investment may decline if
- not insured, endorsed or an issuer fails to pay an
guaranteed by the FDIC, a bank obligation on a timely basis.
or any government agency
subject to investment Small Company Risk
risks, including possible loss If your Fund invests in small
of your original investment. companies, your investment may
be subject to special risks
Like most investments, your associated with investing in
investment in an Evergreen such companies. Smaller, less
Variable Annuity Fund could established companies tend to be
fluctuate significantly in value more dependent on individual
over time and could result in a managers and limited products
loss of money. and product lines.
Additionally, securities issued
Here are the most important by small companies also tend to
factors that may affect the fluctuate in value more
value of your investment: dramatically than those of
larger companies.
Stock Market Risk
Your investment in a Fund that Foreign Investment Risk
invests in stocks will be If your Fund invests in non-U.S.
affected by general economic securities it could be exposed
conditions such as prevailing to certain unique risks of
economic growth, inflation and foreign investing. For example,
interest rates. When economic political turmoil and economic
growth slows, or interest or instability in the countries in
inflation rates increase, which the Fund invests could
securities tend to decline in adversely affect the value of
value. Such events also could your investment. In addition, if
cause companies to decrease the the value of any foreign
dividends they pay. If these currency in which the Fund's
events were to occur, the value investments are denominated
of and dividend yield and total declines relative to the U.S.
return earned on your investment dollar, the value of your
would likely decline. Even if investment in the Fund may
general economic conditions do decline as well. Certain foreign
not change, your investment may countries have less developed
decline in value if particular and less regulated securities
industries, issuers or sectors markets and accounting systems
your Fund invests in do not than the U.S. This may make it
perform well. harder to get accurate
information about a security or
company, and increase the
likelihood that an investment
will not perform as well as expected.
<PAGE>
VA Aggressive Growth Fund
INVESTMENT GOAL
The Fund seeks long-term capital
FUND FACTS: appreciation.
Goal: INVESTMENT STRATEGY
Long-Term Capital Appreciation The Fund seeks to achieve its
goal by investing in emerging
Principal Investments: growth companies and larger,
Common Stocks more well-established companies,
Convertible Securities which are viewed by the manager
as having above-average
Investment Advisor: appreciation potential. The
Evergreen Investment Fund invests at least 65% of its
Management Company assets in common stocks, or
securities convertible into
Portfolio Manager: common stocks, of (1) companies
Maureen E. Cullinane that are in the less seasoned
stage of development but are
NASDAQ Symbol: expected to grow over the long
None term, and/or (2) established
companies that, in the opinion
Dividend Payment Schedule: of the Fund's manager, have
Annually growth potential similar to that
of companies in the less
seasoned stage of development.
The Fund may also invest up to
35% of its assets in investment
grade corporate bonds, U.S.
Government securities,
commercial paper, certificates
of deposit and repurchase
agreements.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Interest Rate Risk
- Credit Risk
- Small Company Risk
In addition, your investment may
be subject to special risks
associated with investing in
securities issued by emerging
growth companies. These
companies are typically in a
less seasoned stage of
development. This could lead to
wide fluctuations in the
price/value of the securities
due to limited financing
alternatives, limited management
depth, intense competition from
larger companies, or limited
trading liquidity.
For further information regarding the
Fund's investment strategy and risk
factors, see "Other Fund Practices."
<PAGE>
PERFORMANCE
The following charts show how the
Fund has performed in the past.
Returns reflect reinvestment of
all dividends and distributions
and fees, but do not reflect
contract charges assessed by
participating insurance
companies. Past performance is
not an indication of future
results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
the Fund's inception on 3/6/97.
It should give you a general idea
of how the Fund's return has
varied from year-to-year and
give you some indication of the
risks of investing in the Fund.
Separate account fees charged
by participating insurance companies
are not reflected in this chart.
If those fees were reflected,
returns would be less than
those shown.
Year-by-Year Total Return (%)
1998
22.25%
Best Quarter: 4th Quarter 1998
+23.70%
Worst Quarter:3rd Quarter 1998
- -10.67%
The next table lists the Fund's
average annual total return over
the past year and since inception
(through 12/31/98). This table is
intended to provide you with some
indication of the risks of
investing in the Fund. At the
bottom of the table you can
compare this performance with the
Russell 1000 Growth Index and the
Nasdaq Industrials Index. The Russell
1000 is an unmanaged market index
tracking the performance of those
Russell 1000 companies with higher
price-to-book ratios and forecasted
growth values. The Nasdaq Industrials
is an unmanaged market index
tracking the performance of
almost 3,000 enterprises engaged
in agriculture, mining, construction,
electronics manufacturing, services and
public administration. Neither is
an actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/6/97
Fund 3/6/97 22.25% N/A N/A 18.24%
Russell 1000 38.71% N/A N/A 33.55%
Growth Index
Nasdaq
Industrials 6.82% N/A N/A 9.45%
<PAGE>
VA Fund
INVESTMENT GOAL
The Fund seeks capital
appreciation.
FUND FACTS:
INVESTMENT STRATEGY
Goal: The Fund invests primarily in
Capital Appreciation common stocks of companies with
innovative and entrepreneurial
Principal Investments: management and that exhibit
Common Stocks sound financial business
Convertible Securities practices.
The Fund may invest in
securities of relatively well-
Investment Advisor: known and large companies as
Evergreen Asset Management well as small and medium-sized
Corp. specialty companies. The Fund
seeks long-term gains from
Portfolio Managers: the companies in which the
Stephen A. Lieber Fund invests. Securities are
Nola Maddox Falcone selected based on a combination
of comparative undervaluation
NASDAQ Symbol: relative to growth potential
EVEFX and/or merger/acquisition price.
The Fund may also invest to a
lesser extent in preferred
Dividend Payment Schedule: stocks that offer an opportunity
Annually for capital appreciation.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Small Company Risk
For further information regarding the
Fund's investment strategy and risks
factors, see "Other Fund Practices."
<PAGE>
PERFORMANCE
The following charts show how
the Fund has performed in the
past. Returns reflect
reinvestment of all dividends
and distributions and fees, but
do not reflect contract charges
assessed by participating
insurance companies. Past
performance is not an indication
of future results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
its inception on 3/1/96. It
should give you a general idea
of how the Fund's return has
varied from year-to-year and
give you some indication of the
risks of investing in the Fund.
Separate account fees charged
by participating insurance
companies are not reflected in
this chart. If those fees
were reflected, returns would
be less than those shown.
Year-by-Year Total Return (%)
1997 1998
37.16% 6.44%
Best Quarter: 4th Quarter 1998
+18.02%
Worst Quarter:3rd Quarter 1998
- -17.20%
The next table lists the Fund's
average annual total return over
the past year and since
inception (through 12/31/98).
This table is intended to
provide you with some indication
of the risks of investing in the
Fund. At the bottom of the
table you can compare this
performance with the Russell
2000 Index and the Nasdaq
Composite. The Russell 2000 is
an unmanaged index tracking the
performance of 2000 publicly-
traded U.S. stocks. It is often
used to indicate the performance
of smaller company stocks. The
Nasdaq Composite is market-value
weighted index that measures all
domestic and non-U.S.-based
common stocks listed on the
Nasdaq stock market. Neither
index is an actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/1/96
Fund 3/1/96 6.44% N/A N/A 20.00%
Russell 2000 -2.55% N/A N/A 11.13%
Nasdaq
Composite 39.63% N/A N/A 27.49%
<PAGE>
VA Foundation Fund
INVESTMENT GOAL
FUND FACTS: The Fund seeks, in order of
priority, reasonable income,
Goals: conservation of capital and
Reasonable Income capital appreciation.
Conservation of Capital
Capital Appreciation
INVESTMENT STRATEGY
Principal Investments: The Fund invests principally in
Common Stocks a combination of common stocks,
Fixed Income Securities securities convertible into or
Convertible securities exchangeable for common stocks
and fixed income securities.
Investments in commons stocks
focus on those that pay
dividends and have the potential
Investment Advisor: for capital appreciation.
Evergreen Asset Management Common stocks are selected based
Corp. on a combination of financial
strength and estimated growth
Portfolio Managers: potential. Fixed income
Stephen A. Lieber securities are selected based on
Irene D. O'Neill the projections of
interest rates, varying amounts
NASDAQ Symbol: and maturities in order to
EVFFX achieve capital protection and,
when possible, capital
appreciation. The Fund's
Dividend Payment Schedule: investment advisor will
Annually emphasize fixed income
securities that it believes will
not be subject to significant
fluctuations in value. Under
normal circumstances, the Fund
anticipates that at least 25% of
its net assets will consist of
fixed income securities. The
corporate debt obligations
purchased by the Fund will be
rated A or higher by Standard &
Poor's Ratings Services and
Moody Investor's Service, Inc.
The Fund is not managed with a
targeted maturity. The Fund may
invest up to 25% of its assets
in foreign securities.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Interest Rate Risk
- Credit Risk
- Foreign Investment Risk
For further information regarding
the Fund's investment strategy and
risk factors, see "Other Fund Practices."
<PAGE>
PERFORMANCE
The following charts shows how
the Fund has performed in the
past. Returns reflect
reinvestment of all dividends
and distributions and fees, but
do not reflect contract charges
assessed by participating
insurance companies. Past
performance is not an indication
of future results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
its inception on 3/1/96. It
should give you a general idea
of how the Fund's return has
varied from year-to-year and
give you some indication of the
risks of investing in the Fund.
Separate account fees charged by
participating insurance companies
are not reflected in this chart.
If those fees were reflected,
returns would be less than
those shown.
Year-by-Year Total Return (%)
1997 1998
27.80% 10.56%
Best Quarter: 2nd Quarter 1997
+13.26%
Worst Quarter:3rd Quarter 1998
- -7.37%
The next table lists the Fund's
average annual total return over
the past year and since
inception (through 12/31/98).
This table is intended to
provide you with some indication
of the risks of investing in the
Fund. At the bottom of the
table you can compare this
performance with the S&P 500
Composite Stock Index and the
Lipper Balanced Fund Average.
The S&P 500 is an unmanaged index
tracking the performance of 500 publicly-
traded U.S. stocks and is often
used to indicate the performance
of the overall stock market.
The Lipper Balanced Fund Average
reflects funds whose primary
objectives are to conserve
principal by maintaining at all
times a balanced portfolio of
both stocks and bonds. Neither
index is an actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/1/96
Fund 3/1/96 10.56% N/A N/A 18.77%
S&P 500 28.58% N/A N/A 28.09%
Lipper Balanced
Fund Average 13.48% N/A N/A 15.76%
<PAGE>
VA Global Leaders Fund
INVESTMENT GOAL
The Fund seeks to provide
investors with long-term capital
FUND FACTS: growth.
Goal:
Long-term Capital Growth
Principal Investments:
U.S. and Non-U.S. Equity INVESTMENT STRATEGY
Securities The Fund normally invests at
least 65% of its assets in a
Investment Advisor: diversified portfolio of U.S.
Evergreen Asset Management and non-U.S. equity securities
Corp. of companies located in the
world's major industrialized
Portfolio Managers: countries. The Fund will make
Stephen A. Lieber investments in no less than
Edwin D. Miska three countries, which may
include the U.S., but may invest
NASDAQ Symbol: more than 25% of its total
None assets in one country. The
Fund's investment advisor will screen
the largest companies
Dividend Payment Schedule: in major industrialized countries.
Annually The Fund invests only in the
best 100 companies which are selected
based on qualitative and quantitative
criteria such as high return on
equity, consistent earnings
growth and established market
presence. The Fund's managers visit
the countries that the Fund may invest
in or already invests in, to evaluate
the political, economic and social trends
that may affect investments in those
countries.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Foreign Investment Risk
In addition, if more than 25% of
the Fund's total assets is
invested in one country, the
value of the Fund's shares may
be subject to greater
fluctuation due to the lesser
degree of diversification across
countries and the fact that the
securities market of certain
countries may be subject to
greater risks and volatility
than that which exists in the
United States.
For further
information regarding the Fund's
investment strategy and risk factors,
see "Other Fund Practices."
<PAGE>
PERFORMANCE
The following charts show how the
Fund has performed in the past.
Returns reflect reinvestment of
all dividends and distributions
and fees, but do not reflect
contract charges assessed by
participating insurance
companies. Past performance is
not an indication of future
results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
its inception on 3/6/97. It
should give you a general idea of
how the Fund's return has varied
from year-to-year and give you
some indication of the risks of
investing in the Fund. Separate
account fees charged by participating
insurance companies are not reflected
in this chart. If those fees were
reflected, returns would be less
than those shown.
Year-by-Year Total Return (%)
1998
18.92%
Best Quarter: 4th Quarter 1998
+21.86%
Worst Quarter:3rd Quarter 1998
- -14.25%
The next table lists the Fund's
average annual total return over
the past year and since inception
(through 12/31/98). This table is
intended to provide you with some
indication of the risks of
investing in the Fund. At the
bottom of the table you can
compare this performance with the
Morgan Stanley Capital
International World Index
(MSCIWI). The MSCIWI is an
unmanaged market index that
represents the 23 developed
markets of the world in a variety
of industries. The MSCIWI is not an
actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/6/97
Fund 3/6/97 18.92% N/A N/A 15.19%
MSCIWI 24.34% N/A N/A 20.83%
<PAGE>
VA Growth and Income Fund
INVESTMENT GOAL
The Fund seeks capital growth in
the value of its shares and
FUND FACTS: current income.
Goals:
- - Capital Growth
- - Current Income
Principal Investment:
- - Common Stocks INVESTMENT STRATEGY
The Fund invests primarily in
Investment Advisor: common stocks of established
- - Evergreen Asset Management companies that the Fund
Corp. considers undervalued in the
marketplace and which have a
Portfolio Manager: trigger, or catalyst, that will
- - Philip M. Foreman bring the stock's price into
line with its actual or
NASDAQ Symbol: potential value. The catalysts
EVGIX may include new products, new
management, changes in
Dividend Payment Schedule: regulation and/or restructuring
Annually potential. The Fund may invest up
to 25% of its assets in foreign
securities.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Foreign Investment Risk
For further information regarding
the Fund's investment strategy and
risk factors, see "Other Fund Practices."
<PAGE>
PERFORMANCE
The following charts show how
the Fund has performed in the
past. Returns reflect
reinvestment of all dividends
and distributions and fees, but
do not reflect contract charges
assessed by participating
insurance companies. Past
performance is not indication of
future results.
The chart below shows the
percentage gain or loss of the
Fund in each calendar year since
its inception in 3/1/96. It
should give you a general idea
of how the Fund's return has
varied from year-to-year and
give you some indication of the
risks of investing in the Fund.
Separate account fees charged
by participating insurance
companies are not reflected
in this chart. If those fees
were reflected, returns would be
less than those shown.
Year-by-Year Total Return (%)
1997 1998
34.66% 4.77%
Best Quarter: 2nd Quarter 1997
+17.25%
Worst Quarter:3rd Quarter 1998
- -15.19%
The next table lists the Fund's
average annual total return over
the past year and since
inception (through 12/31/98).
This table is intended to
provide you with some indication
of the risks of investing in the
Fund. At the bottom of the
table you can compare this
performance with the S&P 500
Composite Stock Index and the
Lipper Growth and Income Fund Average.
The S&P 500 is an unmanaged index
tracking the performance of 500
publicly-traded U.S. stocks and
is often used to indicate the
performance of the overall stock
market. The Lipper Growth and
Income Fund Average reflects
funds that combine a growth-of-
earnings orientation and an
income requirement for level
and/or rising dividends.
Neither index is an actual
investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/1/96
Fund 3/1/96 4.77% N/A N/A 20.05%
S&P 500 28.58% N/A N/A 28.09%
Lipper Growth
& Income
Fund Average 15.61% N/A N/A 20.59%
<PAGE>
VA International Growth Fund
INVESTMENT GOAL
The Fund seeks long-term growth
of capital and secondarily,
modest income.
FUND FACTS:
Goals: INVESTMENT STRATEGY
- - Long-Term Capital Growth The Fund invests primarily in
- - Modest Income equity securities issued by
established, quality non-U.S.
Principal Investment: companies located in countries
- - Equity Securities with developed markets. The
Fund may also invest in emerging
Investment Advisor: markets and in securities of
- - Evergreen Investment companies in the formerly
Management Company communist countries of Eastern
Europe. The Fund normally
Portfolio Manager: invests at least 65% of its
- - Gilman C. Gunn total assets in the securities
of companies in at least three
NASDAQ Symbol: different countries (other than
None the U.S.). The Fund may also
invest in debt securities,
including up to 10% of its
Dividend Payment Schedule: assets in below investment grade
Annually debt securities. The Fund's managers
visit the countries that the Fund may
invest in or already invests in, to
evaluate the political, economic and
social trends that may affect investments
in those countries.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Interest Rate Risk
- Credit Risk
- Foreign Investment Risk
Below investment grade bonds are
commonly referred to as "junk
bonds" because they are usually
backed by issuers of less proven
or questionable financial
strength. Such issuers are more
vulnerable to financial setbacks
and less certain to pay interest
and principal than issuers of
bonds offering lower yields and
risk. Markets may react to
unfavorable news about issuers
of below investment grade bonds
causing sudden and steep
declines in value.
In addition, the Fund may also
be subject to an emerging
markets risk. An "emerging
market" is any country
considered to be emerging or
developing, has a relatively low
gross national product, but the
potential for rapid growth
(which can lead to instability).
Investing in securities of
emerging countries has many
risks. Emerging countries are
generally small and rely heavily
on international trade and could
be adversely effected by the
economic conditions in the
countries with which they trade.
There is also a possibility of a
change in the political climate,
nationalization, diplomatic
developments (including war),
and social instability. Such
countries may experience high
levels of inflation or deflation
and currency devaluation.
Investments in emerging markets
are considered to be
speculative.
For further information regarding the
Fund's investment strategy and risk
factors, see "Other Fund Practices."
<PAGE>
PERFORMANCE
Since the Fund commenced
operations on 8/17/98, total
return information is not yet
available for a full calendar
year.
<PAGE>
VA Masters Fund
INVESTMENT GOAL
FUND FACTS: The Fund seeks long-term capital
appreciation.
Goal:
- - Long-Term Capital Appreciation
Principal Investment:
- - Equity Securities
Investment Advisor: INVESTMENT STRATEGY
- - Evergreen Investment The Fund's investment program is
Management based on the Manager of Managers
strategy of the investment
Portfolio Manager: advisor which allocates the
- - By committee of EIM Managers Fund's portfolio assets on an
approximately equal basis among
NASDAQ Symbol: four investment management
None organizations or sub-advisors --
each of which employs a
Dividend Payment Schedule: different investment style.
Annually
The Fund's current sub-advisors
are:
Evergreen Asset Management
Corp. (EAMC)
MFS Institutional Advisors,
Inc. (MFS)
OppenheimerFunds, Inc.
(Oppenheimer)
Putnam Investment
Management, Inc. (Putnam)
The following investment styles
will be applied by the sub-
advisors to the segment of the
Fund's portfolio for which that
sub-advisor is responsible.
EAMC's segment of the portfolio
will primarily be invested in
equity securities of U.S. and
foreign companies with market
capitalizations between
approximately $500 million and
$5 billion. EAMC invests in
companies it believes the market
has temporarily undervalued in
relation to such factors as the
company's assets, cash flow and
earnings potential. EAMC will
use a value-oriented investment strategy.
MFS manages its segment of the
portfolio by primarily investing
in equity securities of
companies with market
capitalizations between
approximately $500 million and
$5 billion. Such companies
generally would be expected to
show earnings growth over time
that is well above the growth
rate of the overall economy and
the rate of inflation, and would
have the products, management
and market opportunities which
are usually necessary to
continue sustained growth. MFS
may invest up to 25% (and
generally expects to invest
between 0% and 10%) of its
segment of the Fund's assets in
foreign securities (not
including American Depositary
Receipts), including foreign
growth securities, which are not
traded on a U.S. exchange. MFS
will use a growth-oriented investment
strategy.
Oppenheimer manages its segment
of the portfolio by investing
primarily in equity securities
of those companies with market
capitalizations over $5 billion;
however, Oppenheimer may, when
it deems advisable, invest in
the equity securities of mid-cap
and small-cap companies. In
purchasing portfolio securities,
Oppenheimer may invest without
limit in foreign securities and
may, to a limited degree, invest
in non-convertible debt
securities and preferred stocks
which have the potential for
capital appreciation.
Oppenheimer will use a blended
growth- and value-oriented investment
strategy.
Putnam's segment of the
portfolio will primarily be
invested in equity securities of
U.S. and foreign issuers with
market capitalizations of $2
billion or more. Putnam may
also purchase non-convertible
debt securities which offer the
opportunity for capital
appreciation. In the evaluation
of a company, more consideration
is given to growth potential
than to dividend income. Putnam
will use a growth-oriented strategy.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Interest Rate Risk
- Credit Risk
- Small Company Risk
- Foreign Securities Risk
For further information regarding the
Fund's investment strategy and risk
factors, see "Other Fund Practices."
PERFORMANCE
Since the Fund's inception
date was 1/29/99, total
return information is not yet
available for a full calendar
year.
<PAGE>
VA Small Cap Value Fund
INVESTMENT GOAL
The Fund seeks current income
and capital growth in the value
of its shares.
FUND FACTS:
Goal:
- - Current Income
- - Capital Growth
Principal Investments: INVESTMENT STRATEGY
- - Small-Cap Common Stocks The Fund invests primarily in
- - Small-Cap Convertible common stocks and convertible
Preferred Stocks preferred stocks of small
companies (less than $1 billion
Investment Advisor: in market capitalization). The
- - Evergreen Asset Management Fund seeks to limit the
Corp. investment risk of small company
investing by seeking stocks that
Portfolio Manager: produce regular income and trade
- - Nola Maddox Falcone below what the manager considers
- - Jordan D. Alexander their intrinsic value. The Fund
looks specifically for various
NASDAQ Symbol: growth triggers, or catalysts,
None that will bring the stock's
price into line with its actual
or potential value, such as new
Dividend Payment Schedule: products, new management,
Annually changes in regulation and/or
restructuring potential.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Small Company Risk
- Interest Rate Risk
For further information regarding the
Fund's investment strategy and risk
factors, see "Other Fund Practices."
PERFORMANCE
Since the Fund commenced
operations on 5/1/98, total
return information is not yet
available for a full calendar
year.
<PAGE>
VA Strategic Income Fund
INVESTMENT GOAL
The Fund seeks high current
income from interest on debt
FUND FACTS: securities. Secondarily, the
Fund considers potential for
Goals: growth of capital in selecting
- - High Current Income securities.
- - Capital Growth
Principal Investments:
- -Domestic High-Yield Bonds
- -Foreign Debt Securities INVESTMENT STRATEGY
- -U.S. Government Securities The Fund intends to allocate its
assets principally between eligible
domestic high-yield,
high-risk bonds and debt
Investment Advisor: securities (which may be
- - Evergreen Investment denominated in U.S. dollars or
Management Company in non-U.S. currencies) of
foreign governments and foreign
Portfolio Manager: corporations. This allocation
- - Prescott B. Crocker will be made on the basis of the
investment advisor's assessment
NASDAQ Symbol: of global opportunities for high
EVAYX income and high investment
return. The Fund may invest
100% of its assets in U.S.
Dividend Payment Schedule: government securities, including
Annually zero-coupon U.S. Treasury
securities, mortgage-backed
securities and money market
instruments. While the Fund may
invest in securities of any
maturity, it is currently
expected that the Fund will not
invest in securities with
maturities of more than 30
years. The Fund's manager takes
an aggressive approach to
investing but seeks to control
risk through diversification,
credit analysis, economic
analysis, interest rate
forecasts and review of sector
and industry trends.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Interest Rate Risk
- Credit Risk
- Foreign Investment Risk
In addition, the Fund
principally invests in below
investment grade bonds, commonly
referred to as "junk bonds"
because they are usually backed
by issuers of less proven or
questionable financial strength.
Such issuers are more vulnerable
to financial setbacks and less
certain to pay interest and
principal than issuers of bonds
offering lower yields and risk.
Markets may react to unfavorable
news about issuers of below
investment grade bonds causing
sudden and steep declines in
value.
For further information
regarding the Fund's investment
strategy and risk factors, see
"Other Fund Practices."
<PAGE>
PERFORMANCE
The following charts show how
the Fund has performed in the
past. Returns reflect
reinvestment of all dividends
and distributions and fees, but
do not reflect contract charges
assessed by participating
insurance companies. Past
performance is not an indication
of future results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
its inception on 3/6/97. It
should give you a general idea
of how the Fund's returns have
varied from year-to-year and give
you some indication of the risks
of investing in the Fund.
Separate account fees charged by
participating insurance companies
are not reflected in this chart.
If those fees were reflected, returns
would be less than those shown.
Year-by-Year Total Return (%)
1998
5.91%
Best Quarter: 1st Quarter 1998
+2.94%
Worst Quarter:4th Quarter 1998
+0.58%
The next table lists the Fund's
average annual total return over
the past year and since
inception (through 12/31/98).
This table is intended to
provide you with some indication
of the risks of investing in the
Fund. At the bottom of the
table you can compare this
performance with the Lehman
Brothers Aggregate Bond Index.
The Lehman Brothers Aggregate
Bond Index is an unmanaged
market index that tracks the U.S.
investment grade fixed income bond
market, including government,
corporate, agency mortgage pass-thru
securities, and asset-backed securities.
It is not an actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/6/97
Fund 3/6/97 5.91% N/A N/A 6.16%
Lehman Brothers
Aggregate Bond 8.69% N/A N/A 9.67%
Index
<PAGE>
THE FUNDS' INVESTMENT ADVISORS Under the terms of the various
The investment advisor manages a investment advisory agreements,
Fund's investments and the respective investments advisor
supervises its daily business is entitled to receive a fee as a
affairs. There are three percentage of each Fund's average
investment advisors for the daily net assets. Each Fund's current
Evergreen Variable Annuity contractual fee for advisory services
Funds. All investment advisors and effective advisory fee rates for
for the Evergreen Funds are the fiscal year ended December 31,
subsidiaries of First Union 1998 is set forth below.
Corporation, the sixth largest
bank holding company in the <TABLE>
United States, with over <CAPTION>
$223 billion in consolidated
assets as of March 31, 1999. Effective Rate
First Union Corporation is located at for Advisory
301 South College Street, Current Contractual Services For
Charlotte, North Carolina 28288- Advisory Fee Rate Year Ended
0013. 12/31/98
<S> <C> <C>
VA Aggressive 0.60% 0.60%
Growth Fund
VA Fund 0.95% 0.95%
Evergreen Asset Management VA Foundation
Corp. (EAMC) is the investment Fund 0.825% 0.825%
advisor to:
- VA Fund VA Global Leaders
- VA Foundation Fund Fund 0.95% 0.95%
- VA Global Leaders Fund
- VA Growth and Income Fund VA Growth and
- VA Small Cap Value Fund Income Fund 0.95% 0.95%
EAMC, with its predecessors, has VA International 0.75% first $200 million 0.75%
served as investment advisor to Growth Fund 0.65% next $200 million
the Evergreen Funds since 1971, 0.55% next $200 million
and currently manages over 0.45% over $600 million
$19 billion in assets for VA Masters
21 of the Evergreen Funds. EAMC Fund 0.95% 0.00%*
is located at 2500 Westchester
Avenue, Purchase, New York VA Small Cap
10577. Value Fund 0.95% 0.95%
Evergreen Investment Management VA Strategic 2.0% of gross dividend 0.58%
(EIM) (formerly known as Income Fund and interest income
Capital Management Group, or based on the average
CMG), a division of First Union daily net assets,
National Bank, is the investment plus the following:
0.45% first $100 million;
- VA Masters Fund 0.40% next $100 million;
EIM has been managing money for 0.35% next $100 million;
over 50 years and currently 0.30% next $100 million;
manages over $28 billion in 0.25% next $100 million;
investment assets for 44 of the 0.20% over $500 million.
Evergreen Funds. EIM is located *The Fund's date of inception was January 29, 1999.
at 201 South College Street, </TABLE>
Charlotte, North Carolina 28288-
0630.
Evergreen Investment Management
Company (EIMC) is the investment Year 2000 Compliance
advisor to: The investment advisors and
- VA Aggressive Growth Fund other service providers for the
- VA International Growth Fund Evergreen Funds are taking steps
- VA Strategic Income Fund to address any potential Year
2000-related computer problems.
EIMC has been managing mutual However, there is some risk that
funds and private accounts since these problems could disrupt the
1932 and currently manages over Funds' operations or financial
$8 billion in investment markets generally.
assets for 25 of the Evergreen
Funds. EIMC is located at 200 European Currency Conversion
Berkeley Street, Boston, Risk
Massachusetts 02116-5034.
Certain countries in Europe
converted their different
currencies to a single, common
currency on January 1, 1999. In
connection with this change,
investment advisors, mutual
funds and their service
providers have modified their
accounting and recordkeeping
systems to handle the new
currency. If a Fund invests in
foreign securities, your
investment in the Fund may be
adversely affected if these
technical modifications have not
been implemented properly. Also
the conversion to a single
currency may impair the markets
for securities denominated in
the currencies being eliminated,
which may also adversely impact
your investment.
<PAGE>
THE FUNDS' PORTFOLIO MANAGERS
VA Aggressive Growth Fund VA Growth and Income Fund
The day-to-day management of The day-to-day management of the
the Fund is handled by Fund is handled by Philip M.
Maureen E. Cullinane. Ms. Foreman. Mr. Foreman joined
Cullinane has been a Senior EAMC in January 1999 as
Vice President and Senior Portfolio Manager after seven
Portfolio Manager of EIMC years as Senior Portfolio
since 1995. She has worked at Manager at WM Advisors, Inc.
EIMC and its predecessor since Mr. Foreman has managed the Fund
1974 and has over 20 years of since January 1999.
investment experience. Ms.
Cullinane has managed the Fund VA International Growth Fund
since April 1999 and also The day-to-day management of the
manages Evergreen Aggressive Fund is handled by Gilman C.
Growth Fund. Gunn. Mr. Gunn joined EIMC in
1991 as Senior Vice President -
VA Fund International and is currently
The day-to-day management of the Senior Vice President and Chief
Fund is handled by Stephen A. Investment Officer -
Lieber and Nola Maddox Falcone, International at EIMC. Mr. Gunn
CFA. Mr. Lieber is Chairman and has managed Evergreen
Co-Chief Executive Officer of International Growth Fund since
EAMC. He was a founding partner 1991. As head of the
of Lieber & Company, the International Team, Mr. Gunn has
original sponsor of the over 25 years of international
Evergreen Funds, when it was investment experience.
established in 1969. He has
been with EAMC and its VA Small Cap Value Fund
predecessor since 1971 and has The day-to-day management of the
been in the investment Fund is handled by Ms. Falcone
management profession since and Jordan D. Alexander, CFA.
1952. Mr. Lieber has also Mr. Alexander has been an
managed Evergreen Fund since its assistant portfolio manager with
inception in 1970. Ms. Falcone EAMC since September 1998. From
is President and Co-Chief 1995 to 1998, he was an
Executive Officer of EAMC. She associate healthcare analyst
joined Lieber & Company as with Paine Webber, Inc. Prior
Senior Portfolio Manager in to that, he was a senior analyst
1974, and was a General Partner with Arthur Andersen LLP. Ms.
from January 1981 to June 1994. Falcone has served as the
principal manager of Evergreen
VA Foundation Fund Small Cap Value Fund
The day-to-day management of the since 1993.
Fund is handled by Mr. Lieber
and Irene D. O'Neill, CFA. Ms.
O'Neill has over 19 years of VA Strategic Income Fund
investment management experience The day-to-day management of the
and has been associated with Fund is handled by Prescott B.
EAMC and its predecessor since Crocker, Senior Vice President,
1981. Mr. Lieber has managed Senior Portfolio Manager, and
Evergreen Foundation Fund since head of the High Yield Bond Team
its inception in 1990. at EIMC. Mr. Crocker joined
EIMC in 1997. From 1993 until
VA Global Leaders Fund he joined EIMC, he held various
The day-to-day management of the positions at Boston Security
Fund is handled by Mr. Lieber Counsellors, including President
and Edwin D. Miska. Mr. Miska and Chief Investment Officer,
has been an analyst with EAMC and was Managing Director and
and its predecessor since 1986. Portfolio Manager at Northstar
In 1995 he was named co- Investment Management. Mr.
portfolio manager, along with Crocker has over 25 years of
Mr. Lieber, of Evergreen Global experience in fixed income
Leaders Fund. investment management.
<PAGE>
VA Masters Fund The investment advisor
Subject to the supervision continuously monitors the
of EIM, each sub-advisor listed performance and investment
below manages a segment of the styles of the Fund's sub-
Fund's portfolio in accordance advisors and from time to time
with the Fund's investment may recommend changes of sub-
objective and policies, makes advisors based on factors such
investment decisions for the as changes in a sub-advisor 's
segment, and places orders to investment style or a departure
purchase and sell securities for by a sub-advisor from the
the segment. The Fund pays no direct
fees to any of the sub-advisors.
The four sub-advisors of the Fund investment style for which it
are: had been selected, a
- - EAMC is described on page 20. deterioration in a sub-advisor's
performance relative to that of
- - MFS Institutional Advisors, Inc. other investment management
500 Boylston Street, Boston, firms practicing a similar
Massachusetts 02116, is style, or adverse changes in its
America's oldest mutual fund ownership or personnel.
organization. As of December
31, 1998, MFS managed more than One segment may be larger or
$97 billion on behalf of over smaller at various times than
4 million investor accounts. other segments, but the
investment advisor will not
- - OppenheimerFunds, Inc. Two reallocate assets among the
World Trade Center, New York, segments to reduce these
New York 10048, has operated as differences in size until the
an investment advisor since assets allocated to one sub-
1959. As of December 31, 1998, advisor either exceeds 35% or is
Oppenheimer and its subsidiaries less than 15% of the Fund's
managed investment companies average daily net assets for a
with assets of more than $95 period of three consecutive
billion and with more than 4 months. In such event the
million shareholder accounts.
investment advisor may, but is
- - Putnam Investment Management, not obligated to, reallocate
Inc. One Post Office Square, assets among sub-advisors to
Boston, Massachusetts 02109, has provide for a more equal
been managing mutual funds since distribution of the Fund's
1937. As of December 31, 1998, assets.
Putnam and its affiliates
managed more than $295 billion CALCULATING THE SHARE PRICE
of assets for more than 10 The value of one share of a
million shareholder accounts. Fund, also known as the net
asset value, or NAV, is
Manager Oversight of VA Masters
Fund - EIM has appointed a committee calculated on each day the New
of investment personnel which is York Stock Exchange is open as
primarily responsible for of the time the Exchange closes
overseeing the sub-advisors of (normally 4:00 p.m. Eastern
the VA Masters Fund. time). We calculate the share
The investment advisor has price for each share by adding
ultimate responsibility for the up the total assets of the Fund,
investment performance of the subtracting all liabilities,
Fund. then dividing the result by the
total number of shares
outstanding. Each security held
by a Fund is valued using the
most recent market quote for
that security. If no market
quotation is available for a
given security, we will price
that security at fair value
according to policies
established by the Fund's Board
of Trustees. Short-term
securities with maturities of 60
days or less will be valued on
the basis of amortized cost.
The price per share for a Fund
purchase or the amount received
for a Fund redemption is based
on the next price calculated
after the order is received and
all required information is
provided. Certain Funds may invest
in foreign securities that are primarily
listed on foreign exchanges that trade
on weekends or other days when the Fund
does not price its shares. As a result,
the NAV of the Fund may change on days
when investors will not be able to
purchase or redeem the Fund's shares.
<PAGE>
PARTICIPATING INSURANCE
COMPANIES
The Funds were organized to
serve as investment vehicles for participating insurance
separate accounts funding companies place orders to
variable annuity contracts and purchase and redeem shares of
variable life insurance policies the funds based on, among other
issued by certain life insurance things, the amount of premium
companies. The Funds do not payments to be invested and the
currently foresee any amount of surrender and transfer
disadvantages to the holders of requests (as defined in the
the contracts or policies prospectus describing the
arising from the fact that the variable annuity contracts or
interests of holders of those variable life insurance policies
contracts or policies may differ issued by the participating
due to the difference of tax insurance companies) to be
treatment and other effected on that day pursuant to
considerations. Nevertheless, the contracts or policies.
the Trustees have established The Funds do not assess any fees
procedures for the purpose of upon purchase or redemption.
identifying any irreconcilable however, surrender charges,
material conflicts that may mortality and expense risk fees
arise and to determine what and other charges may be
action, if any, would be taken assessed by the participating
in response thereto. The insurance companies under the
variable annuity contracts and variable annuity contracts or
variable life insurance policies variable life insurance
are described in the separate policies. Such fees are
prospectuses issued by the described in the prospectus of
participating insurance such contracts or policies.
companies. The Evergreen
Variable Annuity Trust assumes
no responsibility for such Timing Of Proceeds
prospectuses. Normally, we will send
redemption proceeds on the next
business day after we receive a
request; however, we reserve the
HOW TO BUY AND REDEEM SHARES right to wait up to seven
Investors may not purchase or business days to redeem any
redeem shares of the funds investments.
directly, but only through
variable annuity contracts or
variable life insurance policies
OTHER SERVICES
offered through separate Automatic Reinvestment of
accounts of participating Dividends
insurance companies. Investors For the convenience of
should refer to the prospectus investors, all dividends and
of the variable annuity capital gains are distributed to
contracts or variable life the separate accounts of
insurance policies for participating insurance
information on how to purchase companies and are automatically
such contracts or policies, how reinvested, unless requested
to select specific Evergreen otherwise.
Variable Annuity Funds as
investment options for the
contracts or policies and how to
redeem funds or change
investment options.
The separate accounts of the
<PAGE>
THE TAX CONSEQUENCES OF
INVESTING IN THE FUNDS
Fund Distributions
Each Fund passes along the net addition, a 10% penalty tax on
income or profits it receives distributions before age 59 1/2.
from its investments. The Only the portion of a
Evergreen Variable Annuity Funds distribution attributable to
expect that any distributions to income on the investment in the
separate accounts will be exempt contract is subject to federal
from current federal income income tax. Investors should
taxation to the extent that such consult with competent tax
distributions accumulate in a advisors for a more complete
variable annuity contract or discussion of possible tax
variable life insurance policy. consequences in a particular
situation.
- -Dividends. The Fund pays a
yearly dividend from the
dividends, interest and other
income on the securities in
which it invests.
- -Capital Gains. When a mutual
fund sells a security it owns
for a profit, the result is a
capital gain. Evergreen
Variable Annuity Funds
generally distribute capital
gains at least once a year.
For a discussion of the tax
consequences of variable annuity
contracts or variable life
insurance policies, refer to the
prospectus of the variable
annuity contract or variable
life insurance policies offered
by the participating insurance
company. Variable annuity
contracts or variable life
insurance policies purchased
through insurance company
separate accounts provide for
the accumulation of all earnings
from interest, dividends and
capital appreciation without
current federal income tax
liability to the owner.
Depending on the variable
annuity contract or variable
life insurance policies,
distributions from the contract
or policy may be subject to
ordinary income tax and, in
<PAGE>
FEES AND EXPENSES OF THE FUNDS investment category. There are
Every mutual fund has fees and three things to remember about
expenses that are assessed expense ratios: 1) your total
either directly or indirectly. return in the Fund is reduced in
This section describes each of direct proportion to the fees;
those fees. 2) expense ratios can vary
greatly between funds and fund
Management Fee families, from under 0.25 % to
The management fee pays for the over 3.0%; and 3) a Fund's
normal expenses of managing the advisor may waive a portion of
fund, including portfolio the Fund's expenses for a period
manager salaries, research of time, reducing its expense
costs, corporate overhead ratio.
expenses and related expenses
and, in the case of VA Masters
Fund, sub-advisory fees.
Other Expenses
Other expenses include
miscellaneous fees from
affiliated and outside service
providers. These may include
legal, audit, custodial and
safekeeping fees, the printing
and mailing of reports and
statements, automatic
reinvestment of distributions
and other conveniences for which
the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running the
Fund is called the expense
ratio. As a shareholder, you are
not charged these fees directly;
instead they are taken out
before the Fund's net asset
value is calculated, and are
expressed as a percentage of the
Fund's average daily net assets.
The effect of these fees is
reflected in the performance
results for that share class.
Because these fees are
"invisible," investors should
examine them closely, especially
when comparing one fund with
another fund in the same
<PAGE>
FINANCIAL HIGHLIGHTS
This section looks in detail at
the results for one share in the
Funds - how much income it
earned, how much of this income
was passed along as a
distribution and how much the
return was reduced by expenses.
The tables for each Fund have
been derived from financial
information
audited by KPMG Peat Marwick
LLP, the Funds' independent
auditors. For a more complete
picture of the Funds' financial
statements, please see the
Funds' Annual Report as well as
the Statement of Additional
Information.
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
VA Aggressive Growth Fund 1998 1997*
- ------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year.............. $ 11.10 $ 10.00
------- -------
Income from investment operations
Net investment income#......................... (0.04) (0.06)
Net realized and unrealized gains or losses on
securities.................................... 2.51 1.16
------- -------
Total from investment operations................ 2.47 1.10
------- -------
Net asset value, end of year.................... $ 13.57 $ 11.10
------- -------
Total return (a)................................ 22.25% 11.00%
Ratios/supplemental data
Net assets, end of year (thousands)............. $ 4,039 $ 1,868
Ratios to average net assets:
Expenses....................................... 1.02% 1.06%+
Net investment income.......................... (0.33)% (0.74)%+
Portfolio turnover rate......................... 49% 39%
<CAPTION>
Year Ended December 31,
----------------------------
VA Fund 1998 1997 1996**
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year.............. $ 14.89 $ 11.41 $ 10.00
------- ------- -------
Income from investment operations
Net investment income#......................... 0.07 0.06 0.05
Net realized and unrealized gains or losses on
securities.................................... 0.86 4.15 1.44
------- ------- -------
Total from investment operations................ 0.93 4.21 1.49
------- ------- -------
Less distributions from
Net investment income.......................... 0 (0.05) (0.05)
Net realized gains............................. (0.51) (0.68) (0.03)
------- ------- -------
Total distributions to shareholders............. (0.51) (0.73) (0.08)
------- ------- -------
Net asset value, end of year.................... $ 15.31 $ 14.89 $ 11.41
------- ------- -------
Total return (a)................................ 6.44% 37.16% 14.90%
Ratios/supplemental data
Net assets, end of year (thousands)............. $45,820 $21,600 $10,862
Ratios to average net assets:
Expenses....................................... 1.01% 1.01% 1.00%+
Net investment income.......................... 0.49% 0.42% 0.87%+
Portfolio turnover rate......................... 16% 32% 6%
</TABLE>
+ Annualized.
* For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
** For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
# Net investment income is based on average shares outstanding during the pe-
riod.
(a) Total return does not reflect charges of the separate accounts.
1
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
VA Foundation Fund 1998 1997 1996*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year................ $ 13.54 $ 11.31 $ 10.00
------- ------- -------
Income from investment operations
Net investment income#........................... 0.35 0.26 0.16
Net realized and unrealized gains or losses on
securities...................................... 1.07 2.86 1.37
------- ------- -------
Total from investment operations.................. 1.42 3.12 1.53
------- ------- -------
Less distributions from
Net investment income............................ (0.26) (0.24) (0.16)
Net realized gains............................... (0.23) (0.65) (0.06)
------- ------- -------
Total distributions to shareholders............... (0.49) (0.89) (0.22)
------- ------- -------
Net asset value, end of year...................... $ 14.47 $ 13.54 $ 11.31
------- ------- -------
Total return (a).................................. 10.56% 27.80% 15.30%
Ratios/supplemental data
Net assets, end of year (thousands)............... $78,371 $31,840 $15,812
Ratios to average net assets:
Expenses......................................... 1.00% 1.01% 1.00%+
Net investment income............................ 2.44% 2.15% 2.70%+
Portfolio turnover rate........................... 10% 26% 12%
<CAPTION>
Year Ended
December 31,
----------------
VA Global Leaders Fund 1998 1997**
- -------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year................ $ 10.79 $ 10.00
------- -------
Income from investment operations
Net investment income#........................... 0.10 0.11
Net realized and unrealized gains or losses on
securities and foreign currency related
transactions.................................... 1.94 0.77
------- -------
Total from investment operations.................. 2.04 0.88
------- -------
Less distributions from
Net investment income............................ (0.07) (0.06)
Net realized gains............................... 0 (0.03)
------- -------
Total distributions to shareholders............... (0.07) (0.09)
------- -------
Net asset value, end of year...................... $ 12.76 $ 10.79
------- -------
Total return (a).................................. 18.92% 8.80%
Ratios/supplemental data
Net assets, end of year (thousands)............... $ 9,583 $ 2,899
Ratios to average net assets:
Expenses......................................... 1.04% 1.05%+
Net investment income............................ 0.89% 1.15%+
Portfolio turnover rate........................... 12% 11%
</TABLE>
+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
** For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
# Net investment income is based on average shares outstanding during the pe-
riod.
(a) Total return does not reflect charges of the separate accounts.
2
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
VA Growth And Income Fund 1998 1997 1996*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year....... $ 15.29 $ 11.83 $ 10.00
------- ------- -------
Income from investment operations
Net investment income#.................. 0.16 0.08 0.06
Net realized and unrealized gains or
losses on securities................... 0.56 4.01 1.84
------- ------- -------
Total from investment operations......... 0.72 4.09 1.90
------- ------- -------
Less distributions from
Net investment income................... (0.13) (0.07) (0.06)
Net realized gains...................... (0.30) (0.56) (0.01)
------- ------- -------
Total distributions to shareholders...... (0.43) (0.63) (0.07)
------- ------- -------
Net asset value, end of year............. $ 15.58 $ 15.29 $ 11.83
------- ------- -------
Total return (a)......................... 4.77% 34.66% 19.00%
Ratios/supplemental data
Net assets, end of year (thousands)...... $60,576 $31,088 $14,484
Ratios to average net assets:
Expenses................................ 1.01% 1.01% 1.00%+
Net investment income................... 1.02% 0.59% 1.00%+
Portfolio turnover rate.................. 13% 18% 2%
<CAPTION>
Period Ended
VA International Growth Fund December 31, 1998**
- -------------------------------------------------------------
<S> <C>
Net asset value, beginning of period..... $ 10.00
-------
Income from investment operations
Net investment income#.................. 0.03
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions.......... (0.64)
-------
Total from investment operations......... (0.61)
-------
Net asset value, end of period........... $ 9.39
-------
Total return (a)......................... (6.10)%
Ratios/supplemental data
Net assets, end of period (thousands).... $ 1,425
Ratios to average net assets:
Expenses................................ 1.02%+
Net investment income................... 1.05%+
Portfolio turnover rate.................. 59%
</TABLE>
+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
** For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
# Net investment income is based on average shares outstanding during the pe-
riod.
(a) Total return does not reflect charges of the separate accounts.
3
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended
VA Small Cap Value Fund December 31, 1998*
- ----------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period............... $ 10.00
-------
Income from investment operations
Net investment income#............................ 0.15
Net realized and unrealized gains or losses on
securities....................................... (0.45)
-------
Total from investment operations................... (0.30)
-------
Less distributions from
Net investment income............................. (0.11)
Net realized gains................................ (0.01)
-------
Total distributions to shareholders................ (0.12)
-------
Net asset value, end of period..................... $ 9.58
-------
Total return (a)................................... (2.86)%
Ratios/supplemental data
Net assets, end of period (thousands).............. $ 2,282
Ratios to average net assets:
Expenses.......................................... 1.02%+
Net investment income............................. 2.49%+
Portfolio turnover rate............................ 16%
<CAPTION>
Year Ended December 31,
-------------------------
VA Strategic Income Fund 1998 1997**
- -------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year................. $ 10.20 $10.00
------- ------
Income from investment operations
Net investment income#............................ 0.64 0.32
Net realized and unrealized gains or losses on
securities and foreign currency related
transactions..................................... (0.04) 0.21
------- ------
Total from investment operations................... 0.60 0.53
------- ------
Less distributions from
Net investment income............................. (0.41) (0.31)
Net realized gains................................ 0 (0.02)
------- ------
Total distributions to shareholders................ (0.41) (0.33)
------- ------
Net asset value, end of year....................... $ 10.39 $10.20
------- ------
Total return (a)................................... 5.91% 5.28%
Ratios/supplemental data
Net assets, end of year (thousands)................ $11,182 $2,204
Ratios to average net assets:
Expenses.......................................... 1.02% 1.02%+
Net investment income............................. 6.05% 5.34%+
Portfolio turnover rate............................ 231% 119%
</TABLE>
+ Annualized.
* For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
** For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
# Net investment income is based on average shares outstanding during the pe-
riod.
(a) Total return does not reflect charges of the separate accounts.
4
<PAGE>
OTHER FUND PRACTICES
The Funds may invest in futures and In addition, the Funds may borrow
options. The Funds may also engage in money and lend their securities.
short sales. Such practices are used Borrowing is a form of leverage that
to hedge a Fund's portfolio to protect may magnify a Fund's gain or loss.
against changes in interest rates and Lending securities may cause the Fund
to adjust the portfolio's duration. to lose the opportunity to sell these
Although this is intended to increase securities at the most desirable price
returns, these practices may actually and, therefore, lose money.
reduce returns or increase volatility.
The Funds generally do not take
If the Fund invests in foreign portfolio turnover into account in
securities, which may include foreign making investment decisions. This
currency transaction, means the Funds could experience a
the value of the Fund's shares will be high rate of portfolio turnover (100%
affected by changes in exchange rates. or more) in any given fiscal year,
To manage this risk, the Fund may resulting in greater brokerage and
enter into currency futures contracts other transactions costs which are
and forward currency exchange borne by the Funds and their
contracts. Although the Fund uses shareholders.
these contracts to hedge the U.S.
dollar value of a security it
already owns,the Fund could lose money
if it fails to predict accurately the
future exchange rates. The Fund may
engage in hedging and cross hedging
with respect to foreign currencies to
protect itself against a possible
decline in the value of another
foreign currency in which certain of
the Fund's investments are dominated.
A cross hedge cannot protect against
exchange rate risks perfectly, and if
a Fund is incorrect in its judgement
of future exchange rate relationships,
the Fund could be in a less
advantageous position than if such a
hedge had not been established.
Please consult the Statement of Additional Information for more
information regarding these and other investment practices used by the
Funds, including risks.
<PAGE>
Notes
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Pennsylvania Municipal Money
Market Fund
Florida Municipal Money Market
Fund
New Jersey Municipal Money
Market Fund
Municipal Bond
Short Intermediate Municipal
Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
California Municipal Bond Fund
Connecticut Municipal Bond Fund
Florida High Income Municipal
Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Municipal Bond
Fund
Missouri Municipal Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
North Carolina Municipal Bond
Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond
Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income
Fund
Short Intermediate Bond Fund
Intermediate Term Government
Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Fund for Total Return
Income and Growth Fund
Blue Chip Fund
Value Fund
Growth and Income Fund
Small Cap Value Fund
Domestic Growth
Evergreen Fund
Micro Cap Fund
Aggressive Growth Fund
Omega Fund
Small Company Growth Fund
Stock Selector Fund
Strategic Growth Fund
Tax Strategic Equity Fund
Masters Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Variable Annuity
VA Aggressive Growth Fund
VA Fund
VA Foundation Fund
VA Global Leaders Fund
VA Growth and Income Fund
VA International Growth Fund
VA Masters Fund
VA Small Cap Value Fund
VA Strategic Income Fund
www.evergreen-funds.com
<PAGE>
Information Line for Hearing and For express, registered or
Speech Impaired (TTY/TDD) certified mail:
Call 1-800-343-2888 Evergreen Service Company
Each business day, 8 a.m. to 200 Berkeley Street
6 p.m. Eastern time Boston, MA 02116-5039
Write us a letter Contact us on-line:
Evergreen Service Company www.evergreen-funds.com
P.O. Box 2121
Boston, MA 02106-2121
for general correspondence
<PAGE>
For More Information About the Evergreen Variable Annuity Funds, Ask for:
The Funds' most recent Annual or Semi-annual Report, which contains a
complete financial accounting for each Fund and a complete list of the
Fund's holdings as of a specific date, as well as commentary from the
Fund's manager. This Report discusses the market conditions and investment
strategies that significantly affected the Fund's performance during the
most recent fiscal year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Funds. The SAI has
been filed with the Securities and Exchange Commission (SEC) and its
contents are legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of
any of the documents, call 1-800-343-2898 or ask your investment
representative. We will mail material within three business days.
Information about these Funds (including the SAI) is also available on the
SEC's Internet web site at http://www.sec.gov, or, for a duplication fee,
by writing the SEC Public Reference Section, Washington DC 20549-6009. This
material can also be reviewed and copied at the SEC's Public Reference Room
in Washington, DC. For more information, call the SEC at 1-800-SEC-0330.
Evergreen Distribor, Inc.
90 Park Avenue
New York, New York, 10016
SEC File No.: 811-8716
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
Evergreen VA Aggressive Growth Fund ("Aggressive Growth Fund")
Evergreen VA Fund ("Evergreen Fund ")
Evergreen VA Foundation Fund ("Foundation Fund ")
Evergreen VA Global Leaders Fund ("Global Leaders Fund")
Evergreen VA Growth and Income Fund ("Growth and Income Fund")
Evergreen VA International Growth Fund ("International Growth Fund")
Evergreen VA Masters Fund ("Masters Fund")
Evergreen VA Small Cap Value Fund ("Small Cap Fund") and
Evergreen VA Strategic Income Fund ("Strategic Income Fund")
Each Fund is a series of Evergreen Variable Annuity Trust (the "Trust").
This Statement of Additional Information ("SAI") pertains to the Funds
listed above. It is not a prospectus but should be read in conjunction with the
prospectus dated May 1, 1999 for the Fund in which you are interested. The Funds
are offered to separate accounts funding variable annuity and variable life
insurance contracts issued by life insurance companies ("Participating Insurance
Companies"). Copies of the prospectus may be obtained without charge by calling
(800) 343-2898.
Certain information is incorporated by reference to the Funds' Annual
Report dated December 31, 1998. You may obtain a copy of the Annual Report
without charge by calling (800) 343- 2898.
<PAGE>
TABLE OF CONTENTS
PART 1
FUND HISTORY......................................................1-1
INVESTMENT POLICIES...............................................1-1
OTHER SECURITIES AND PRACTICES....................................1-3
PRINCIPAL HOLDERS OF FUND SHARES..................................1-3
EXPENSES..........................................................1-5
PERFORMANCE.......................................................1-9
SERVICE PROVIDERS.................................................1-9
FINANCIAL STATEMENTS.......................................... ..1-10
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES... .2-1
PURCHASE, REDEMPTION AND PRICING OF SHARES........................2-16
PERFORMANCE CALCULATIONS..........................................2-17
TAX INFORMATION...................................................2-19
BROKERAGE.........................................................2-20
ORGANIZATION......................................................2-22
INVESTMENT ADVISORY AGREEMENT.....................................2-23
MANAGEMENT OF THE TRUST...........................................2-24
CORPORATE BOND RATINGS...........................................2-26
ADDITIONAL INFORMATION............................................2-31
<PAGE>
PART 1
FUND HISTORY
The Evergreen Variable Annuity Trust is an open-end management investment
company, which was organized as a Delaware business trust on December 23, 1997.
A copy of the Declaration of Trust is on file as an exhibit to the Trust's
Registration Statement, of which this SAI is a part. The foregoing is qualified
in its entirety by reference to the Declaration of Trust.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund's practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Fund's practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
The Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, the Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of issuers
primarily engaged in any particular industry (other than securities that are
issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
Further Explanation of Concentration Policy:
Each Fund may not invest more than 25% of its total assets, taken at market
value, in the securities of issuers primarily engaged in any particular industry
(other than securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33-1/3% of its total assets, taken at market
value. Each Fund may also borrow up to an additional 5% of its total assets from
banks or others. Each Fund may borrow only as a temporary measure for
extraordinary or emergency purposes such as the redemption of Fund shares. Each
Fund may purchase additional securities as long as outstanding borrowings do not
exceed 5% of its total assets. Each Fund may obtain such short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities. Each Fund may purchase securities on margin and engage in short
sales to the extent permitted by applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except insofar as
a Fund may be deemed to be an underwriter in connection with the disposition of
its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the extent
permitted by applicable law, a Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on commodities,
except to the extent that a Fund may engage in financial futures contracts and
related options and currency contracts and related options and may otherwise do
so in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act.
8. Lending
Each Fund may not make loans to other persons, except that a Fund may lend
its portfolio securities in accordance with applicable law. The acquisition of
investment securities or other investment instruments shall not be deemed to be
the making of a loan.
Further Explanation of Lending Policy:
To generate income and offset expenses, a Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33-1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay the Fund any income accruing on the security. The
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect the Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give the
Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
OTHER SECURITIES AND PRACTICES
For information regarding certain securities the Funds may purchase and
certain investment practices the Funds may use, see "Additional Information on
Securities and Investment Practices" in Part 2 of this SAI.
PRINCIPAL HOLDERS OF FUND SHARES
As of March 31, 1999, the officers and Trustees of the Trust owned as a
group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of each Fund as of March 31, 1999.
Aggressive Growth Fund
Nationwide Life Insurance 69.00%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Evergreen Fund
Nationwide Life Insurance 63.0%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Foundation Fund
Nationwide Life Insurance 84.9%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Security Equity Life 5.0%
Insurance Co.
Registered Share Account
Attn Richard Leifels
84 Business Park Drive,
Ste. 303
Armonk, NY 10504-1738
Global Leaders Fund
Nationwide Life Insurance 56.0%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Growth and Income Fund
Nationwide Life Insurance 54.00%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
International Growth Fund
Nationwide Life Insurance 92.00%
Seed Account
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Masters Fund
None
Small Cap Fund
Nationwide Life Insurance 49.00%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Strategic Income Fund
Nationwide Life Insurance 54.00%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. For more information, see
"Investment Advisory Agreements" in Part 2 of this SAI.
Evergreen Asset Management Corp. ("EAMC") is the investment advisor to
Evergreen Fund, Global Leaders Fund, Growth and Income Fund and Small Cap Fund.
Lieber & Company acts as sub-advisor to these Funds, and is reimbursed by EAMC
for the costs of providing sub-advisory services. EAMC is entitled to receive
from each of these Funds an annual fee equal to 0.95% of the average daily net
assets of each Fund.
EAMC is also the investment advisor to Foundation Fund. EAMC is entitled to
receive from Foundation Fund an annual fee equal to 0.825% of the average daily
net assets of the Fund. Lieber & Company also acts as sub-advisor to this Fund,
and is reimbursed by EAMC for the costs of providing sub-advisory services.
Evergreen Investment Management ("EIM"), formerly the Capital Management
Group of First Union National Bank ("FUNB"), is the investment advisor to
Masters Fund. EIM is entitled to receive from Masters Fund an annual fee equal
to 0.95% of the average daily net assets of the Fund. EIM pays MFS Institutional
Advisors, Inc., OppenheimerFunds, Inc. and Putnam Investment Management, Inc.
sub-advisory fees equal in the aggregate up to .50% of the Fund's average daily
net assets. EAMC, an affiliate of EIM, receives a sub-advisory fee equal to .50%
of the first $500 million of the Fund's average daily net assets managed by
EAMC, .40% of the next $500 million of such net assets, and .35% of such net
assets in excess of $1billion.
Evergreen Investment Management Company ("EIMC"), formerly Keystone
Investment Management Company, is the investment advisor to Aggressive Growth
Fund, International Growth Fund and Strategic Income Fund. EIMC is entitled to
receive from Aggressive Growth Fund an annual fee equal to 0.60% of the average
daily net assets of the Fund. EIMC is entitled to receive from Strategic Income
Fundan annual fee of 2.0% of gross dividend and interest income based on the
average daily net assets, plus the following:
Average Daily Net Fee
Assets
first $100 million 0.45%
next $100 million 0.40%
next $100 million 0.35%
next $100 million 0.30%
next $100 million 0.25%
over $500 million 0.20%
EIMC is entitled to receive from International Growth Fund an annual fee based
on the average daily net assets, as follows:
Average Daily Net Fee
Assets
first $200 million 0.75%
next $200 million 0.65%
next $200 million 0.55%
over $600 million 0.45%
Advisory Fees Paid
Below are the advisory fees paid by each Fund for the last three fiscal
periods.
Fiscal Period/Fund Advisory Advisory Fees
Fees Paid Waived
Periods Ended 1998
Aggressive Growth $16,941 $14,973
Fund
Evergreen Fund $326,123 $42,262
Foundation Fund $467,156 $0
Global Leaders Fund $58,409 $31,587
Growth and Income $453,431 $69,140
Fund
International Growth $3,122 $3,122
Fund(a)
Small Cap Fund(b) $9,742 $9,742
Strategic Income $39,755 $0
Fund
Periods Ended 1997
Aggressive Growth $6,358 $6,280
Fund(c)
Evergreen Fund $152,253 $47,286
Foundation Fund $186,702 $20,317
Global Leaders $12,787 $12,787
Fund(c)
Growth and Income $206,973 $47,995
Fund
Strategic Income $6,441 $6,441
Fund(c)
Periods Ended 1996
Evergreen Fund(d) $48,143 $47,843
Foundation Fund(d) $67,460 $49,436
Growth and Income $61,749 $54,339
Fund(d)
(a) For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
(b) For the period from May 1, 1998 (commencement of operations) to December
31, 1998.
(c) For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
(d) For the period from March 1, 1996 commencement of operations) December
31, 1996.
Brokerage Commissions
Below are the brokerage commissions paid by each Fund and brokerage
commissions paid by the applicable Funds to Lieber & Company for the last three
fiscal years or periods. For more information regarding brokerage commissions,
see "Brokerage" in Part 2 of this SAI.
Fund/Fiscal Year or Period
Total Paid to Total Paid
All Brokers to Lieber
Year or Period Ended 1998
Aggressive Growth Fund $3,380 $0
Evergreen Fund $53,354 $47,079
Foundation Fund $47,678 $46,786
Global Leaders Fund $13,902 $6,368
Growth and Income Fund $53,618 $53,382
International Growth Fund(a) $6,231 $0
Small Cap Fund(b) $3,934 $2,821
Year or Period Ended 1997
Aggressive Growth Fund(c) $754 $0
Evergreen Fund $19,154 $16,810
Foundation Fund $16,976 $16,976
Global Leaders Fund(c) $6,526 $1,965
Growth and Income Fund $20,369 $17,413
Year or Period Ended 1996
Evergreen Fund(d) $17,474 $16,882
Foundation Fund(d) $17,682 $16,849
Growth and Income Fund(d) $20,587 $17,389
(a) For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
(b) For the period from May 1, 1998 (commencement of operations) to December
31, 1998.
(c) For the period from March 6, 1997 (commencement of operations) to
December 31, 1997.
(d) For the period from March 1, 1996 (commencement of operations) December
31, 1996.
Percentage of Brokerage Commissions Paid to Lieber & Company
The table below shows, for the fiscal year or period ended December 31,
1998, (1) the percentage of aggregate brokerage commissions paid by each
applicable Fund to Lieber & Company and (2) the percentage of each applicable
Fund's aggregate dollar amount of commissionable transactions effected through
Lieber & Company. For more information, see "Selection of Brokers" under
"Brokerage" in Part 2 of this SAI.
Percentage of
Percentage of Commissionable
Fund Commissions Transactions
to Lieber & through Lieber
Company & Company
Evergreen Fund 88% 86%
Foundation Fund 98% 97%
Global Leaders 46% 45%
Fund
Growth and Income 99% 98%
Fund
Small Cap Fund 72% 63%
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually and
by the Trust and the eight other trusts in the Evergreen Fund complex for the
twelve months ended December 31, 1998. The Trustees do not receive pension or
retirement benefits from the Funds. For more information, see "Management of the
Trust" in Part 2 of this SAI.
Aggregate Total
Trustee Compensation Compensation
from Trust from Trust and
Fund Complex
Paid to
Trustees*
Laurence B. $39 $75,500
Ashkin
Charles A. $27 $75,500
Austin, III
K. Dun Gifford $24 $73,000
James S. Howell $36 $84,900
Leroy Keith Jr. $24 $73,000
Gerald M. $27 $75,500
McDonnell
Thomas L. $32 $86,500
McVerry
William Walt $25 $68,000
Pettit
David M. $27 $73,300
Richardson
Russell A. $27 $79,000
Salton, III
Michael S. $24 $79,500
Scofield
Richard J. $24 $73,000
Shima
*Certain Trustees have elected to defer all or part of their total
compensation for the twelve months ended December 31, 1998. The
amounts listed below will be payable in later years to the respective Trustees:
Austin $11,325
Howell $65,000
McDonnell $75,000
McVerry $86,500
Pettit $68,000
Salton $79,000
PERFORMANCE
Total Return
Below are the average annual total returns for the Funds as of December 31,
1998. The returns for International Growth and Small Cap are cumulative. For
more information, see "Total Return" under "Performance Calculations" in Part 2
of this SAI.
Ten Years
Fund One Year Five or Since Inception
Years Inception Date
Aggressive Growth 22.25% N/A 18.24% 3/6/97
Fund
Evergreen Fund 6.44% N/A 20.00% 3/1/96
Foundation Fund 10.56% N/A 18.77% 3/1/96
Global Leaders 18.92% N/A 15.19% 3/6/97
Fund
Growth and Income 4.77% N/A 20.05% 3/1/96
Fund
International N/A N/A -6.10% 8/17/98
Growth Fund
Small Cap Fund N/A N/A -2.86% 5/1/98
Strategic Income 5.91% N/A 6.16% 3/6/97
Fund
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the Funds, subject to the supervision and control of the Trust's Board of
Trustees. EIS provides the Funds with facilities, equipment and personnel and is
entitled to receive a fee from the Funds based on the total assets of all mutual
funds for which EIS serves as administrator and a First Union Corporation
subsidiary serves as advisor. The fee paid to EIS is calculated in accordance
with the following schedule:
Assets Fee
-------- ------
first $7 0.050%
billion
next $3 0.035%
billion
next $5 0.030%
billion
next $10 0.020%
billion
next $5 0.015%
billion
over $30 0.010%
billion
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Funds' transfer agent. ESC issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. The transfer agent's address is P.O. Box 2121, Boston,
Massachusetts 02106-2121. The Funds pay ESC annual fees as follows:
Fund Type Annual Fee Annual Fee
Per Open Per
Account* Closed
Account**
Monthly $25.50 $9.00
Dividend Funds
Quarterly $24.50 $9.00
Dividend Funds
Semiannual $23.50 $9.00
Dividend Funds
Annual Dividend $23.50 $9.00
Funds
Money Market $25.50 $9.00
Funds
* For shareholder accounts only. The Fund pays ESC cost plus 15% for
broker accounts.
** Closed accounts are maintained on the system in
order to facilitate historical and tax
information.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
audits the financial statements of each Fund.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank
keeps custody of each Fund's securities and cash and performs other related
duties. The custodian's address is 225 Franklin Street, Boston, Massachusetts
02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its
address is 1025 Connecticut Avenue, NW, Washington, D.C. 20036.
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are hereby
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts 02106-
2121.
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the securities
in which it primarily invests. The following describes other securities the Fund
may purchase and investment strategies it may use. Some of the information below
will not apply to the Fund in which you are interested. Unless specifically
stated, each Fund may invest in or use the strategies listed below.
Defensive Investments
The Fund may invest up to 100% of its assets in high quality short-term
obligations, such as notes, commercial paper, certificates of deposit, banker's
acceptances, bank deposits or U.S. government securities if, in the opinion of
the investment advisor, market conditions warrant a temporary defensive
investment strategy.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by U.S.
government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive
financial support from the U.S. government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")
The Fund may invest in securities issued by the GNMA, a corporation
wholly-owned by the U.S. government. GNMA securities or "certificates" represent
ownership in a pool of underlying mortgages. The timely payment of principal and
interest due on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. government securities, they may be less effective as a
means of locking in attractive long- term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery basis
and may purchase or sell securities on a forward commitment basis. Settlement of
such transactions normally occurs within a month or more after the purchase or
sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued, delayed
delivery or forward commitment basis the Fund will hold liquid assets worth at
least the equivalent of the amount due. The liquid assets will be monitored on a
daily basis and adjusted as necessary to maintain the necessary value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Options
An option is a right to buy or sell a security for a specified price within
a limited time period. The option buyer pays the option seller (known as the
"writer") for the right to buy, which is a "call" option, or the right to sell,
which is a "put" option. Unless the option is terminated, the option seller must
then buy or sell the security at the agreed-upon price when asked to do so by
the option buyer.
The Fund may buy or sell (i.e., write) put and call options on
securities it holds or intends to acquire and may also purchase put and call
options for the purpose of offsetting previously written put and call options of
the same series. The Fund may also buy and sell options on financial futures
contracts. The Fund will use options as a hedge against decreases or increases
in the value of securities it holds or intends to acquire.
The Fund may write only covered options. With regard to a call option,
this means that the Fund will own, for the life of the option, the securities
subject to the call option. The Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If the Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised.
Futures Transactions (excluding Aggressive Growth Fund, Evergreen Fund and
Foundation Fund)
The Fund may enter into financial futures contracts and write options
on such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
The Fund may sell or purchase futures contracts. When a futures contract
is sold by the Fund, the value of the contract will tend to rise when the value
of the underlying securities declines and to fall when the value of such
securities increases. Thus, the Fund sells futures contracts in order to offset
a possible decline in the value of its securities. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and fall when the value of such
securities declines. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires the Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates or market prices could result in poorer performance
than if it had not entered into these transactions. Even if the investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. The Fund's investment advisor will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather the Fund
is required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions. Initial margin
is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value the Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Foreign Securities (excluding Evergreen Fund, Foundation Fund, Growth and Income
and Small Cap Fund)
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also consist of obligations of foreign branches of
U.S. banks and of foreign banks, including European certificates of deposit,
European time deposits, Canadian time deposits and Yankee certificates of
deposit. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; establishment of exchange
controls or taxation at the source; greater fluctuations in value due to changes
in exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
Foreign Currency Transactions (only Global Leaders Fund, International Growth
Fund, Masters Fund and Strategic Income Fund)
As one way of managing exchange rate risk, the Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). The exchange rate for the transaction (the amount of
currency the Fund will deliver and receive when the contract is completed) is
fixed when the Fund enters into the contract. The Fund usually will enter into
these contracts to stabilize the U.S. dollar value of a security it has agreed
to buy or sell. The Fund intends to use these contracts to hedge the U.S. dollar
value of a security it already owns, particularly if the Fund expects a decrease
in the value of the currency in which the foreign security is denominated.
Although the Fund will attempt to benefit from using forward contracts, the
success of its hedging strategy will depend on the investment advisor's ability
to predict accurately the future exchange rates between foreign currencies and
the U.S. dollar. The value of the Fund's investments denominated in foreign
currencies will depend on the relative strengths of those currencies and the
U.S. dollar, and the Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates also may affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund. The Fund may also purchase and sell
options related to foreign currencies in connection with hedging strategies.
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although a Fund values its assets daily
in U.S. dollars, a Fund generally does not convert its holdings to U.S. dollars
or any other currency. Foreign exchange dealers may realize a profit on the
difference between the price at which a Fund buys and sells currencies.
Each Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. A Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies.
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would through
the use of forward foreign currency exchange contracts. The Fund may be able to
achieve these objectives possibly more effectively and at a lower cost by using
futures transactions instead of forward foreign currency exchange contracts.
A foreign currency futures contract sale creates an obligation by the Fund,
as seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of currency futures
contracts is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a currency futures contract sale is
effected by the Fund entering into a currency futures contract purchase for the
same aggregate amount of currency and same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund is immediately paid
the difference and realizes a gain. If the offsetting sale price is less than
the purchase price, the Fund realizes a loss. Similarly, the closing out of a
currency futures contract purchase is effected by the Fund entering into a
currency futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the offsetting sale price is
less than the purchase price, the Fund realizes a loss.
Special Risks Associated with Foreign Currency Futures Contracts and
Related Options
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there are
risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on futures currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. To reduce this risk,
the Funds will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of the investment advisors, the
market for such options has developed sufficiently that the risks in connection
with such options are not greater than the risks in connection with transactions
in the underlying foreign currency futures contracts. Compared to the purchase
or sale of foreign currency futures contracts, the purchase of call or put
options on futures contracts involves less potential risk to the Funds because
the maximum amount at risk is the premium paid for the option (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract.
High Yield, High Risk Bonds (only International Growth Fund and Strategic Income
Fund)
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by Standard & Poor's Ratings Services ("S&P")or Fitch IBCA, Inc.
("Fitch") or below Baa by Moody's Investors Service, Inc. ("Moody's"), commonly
known as "junk bonds," offer high yields, but also high risk. While investment
in junk bonds provides opportunities to maximize return over time, they are
considered predominantly speculative with respect to the ability of the issuer
to meet principal and interest payments. Investors should be aware of the
following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or perceived
adverse economic or political events than is the case for higher quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond and
the Fund's ability to obtain accurate market quotations for purposes of valuing
its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when the Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books. The Fund may invest in
"restricted" securities, i.e., securities subject to restrictions on resale
under federal securities laws. Rule 144A under the Securities Act of 1933 ("Rule
144A") allows certain restricted securities to trade freely among qualified
institutional investors. Since Rule 144A securities may have limited markets,
the Board of Trustees will determine whether such securities should be
considered illiquid for the purpose of determining the Fund's compliance with
the limit on illiquid securities indicated above. In determining the liquidity
of Rule 144A securities, the Trustees will consider: (1) the frequency of trades
and quotes for the security; (2) the number of dealers willing to purchase or
sell the security and the number of other potential buyers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. The Fund may effect
a short sale in connection with an underwriting in which the Fund is a
participant.
Payment-in-kind Securities (only International Growth Fund and Strategic Income
Fund)
Payment-in-kind ("PIK") securities pay interest in either cash or
additional securities, at the issuer's option, for a specified period. The
issuer's option to pay in additional securities typically ranges from one to six
years, compared to an average maturity for all PIK securities of eleven years.
Call protection and sinking fund features are comparable to those offered on
traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities
- -- is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accredit interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
Zero Coupon "Stripped" Bonds (only International Growth Fund and Strategic
Income Fund)
A zero coupon "stripped" bond represents ownership in serially maturing
interest payments or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. Coupon zero coupon bonds of any
series mature periodically from the date of issue of such series through the
maturity date of the securities related to such series. Principal zero coupon
bonds mature on the date specified therein, which is the final maturity date of
the related securities. Each zero coupon bond entitles the holder to receive a
single payment at maturity. There are no periodic interest payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or coupon zero coupon bonds (either initially or in the secondary market)
is treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market value at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds.
Master Demand Notes
The Fund may invest in master demand notes. These are unsecured
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the issuer, as borrower. Master demand notes may permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may repay up to the full amount of the note without penalty. Master
demand notes permit the Fund to demand payment of principal and accrued interest
at any time (on not more than seven days' notice). Notes acquired by the Fund
may have maturities of more than one year, provided that (1) the Fund is
entitled to payment of principal and accrued interest upon not more than seven
days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, the Fund`s investment advisor
considers, under standards established by the Board of Trustees, earning power,
cash flow and other liquidity ratios of the borrower and will monitor the
ability of the borrower to pay principal and interest on demand. These notes are
not typically rated by credit rating agencies. Unless rated, the Fund may invest
in them only if at the time of an investment the issuer meets the criteria
established for commercial paper discussed in this statement of additional
information (which limits such investments to commercial paper rated A-1 by S&P,
Prime-1 by Moody's or F-1 by Fitch).
Mortgage-Backed or Asset-Backed Securities (only Strategic Income Fund)
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
services were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
rated asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Variable or Floating Rate Instruments (only Global Leaders Fund, International
Growth Fund, Masters Fund, Small Cap Fund and Strategic Income Fund)
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for each Fund. The investment
advisor will monitor, on an ongoing basis, the earning power, cash flow, and
liquidity ratios of the issuers of such instruments and will similarly monitor
the ability of an issuer of a demand instrument to pay principal and interest on
demand.
Brady Bonds (only Strategic Income Fund and International Growth Fund)
The Fund may invest in Brady Bonds. Brady Bonds are created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Convertible Securities
The Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allow convertible securities to be employed for a
variety of investment strategies.
The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment advisor, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. The Fund may also elect to hold or trade
convertible securities. In selecting convertible securities, the investment
adviser evaluates the investment characteristics of the convertible security as
a fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment adviser considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
Warrants (excluding Strategic Income Fund)
The Fund may invest in warrants. Warrants are options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than one year to twenty years, or
they may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, a warrant is worthless if the market price of
the common stock does not exceed the warrant's exercise price during the life of
the warrant. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
Sovereign Debt Obligations (only Growth and Income, International Growth Fund
and Strategic Income Fund)
The Fund may purchase sovereign debt instruments issued or guaranteed
by foreign governments or their agencies, including debt of Latin American
nations or other developing countries. Sovereign debt may be in the form of
conventional securities or other types of debt instruments such as loans or loan
participations. Sovereign debt of developing countries may involve a high degree
of risk, and may be in default or present the risk of default. Governmental
entities responsible for repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
Derivatives
To the extent provided for elsewhere in this Statement of Additional
Information, the Fund may use derivatives while seeking to achieve its
investment objective. Derivatives are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, reference rate or
index. These assets, rates, and indices may include bonds, stocks, mortgages,
commodities, interest rates, currency exchange rates, bond indices and stock
indices. Derivatives can be used to earn income or protect against risk, or
both. For example, one party with unwanted risk may agree to pass that risk to
another party who is willing to accept the risk, the second party being
motivated, for example, by the desire either to earn income in the form of a fee
or premium from the first party, or to reduce its own unwanted risk by
attempting to pass all or part of that risk to the first party.
Derivatives can be used by investors such as the Fund to earn income
and enhance returns, to hedge or adjust the risk profile of the portfolio, and
in place of more traditional direct investments to obtain exposure to otherwise
inaccessible markets. The Fund is permitted to use derivatives for one or more
of these purposes. The use of derivatives for non-hedging purposes entails
greater risks. The Fund uses futures contracts and related options as well as
forwards for hedging purposes. Derivatives are a valuable tool, which, when used
properly, can provide significant benefit to Fund shareholders. However, the
Fund may take positions in those derivatives that are within its investment
policies if, in the investment advisor's judgment, this represents an effective
response to current or anticipated market conditions. An investment advisor's
use of derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments options,
futures, forwards and swaps - from which virtually any type of derivative
transaction can be created. Further information regarding options, futures,
forwards and swaps is provided elsewhere in this section.
Debt instruments that incorporate one or more of these building blocks
for the purpose of determining the principal amount of and/or rate of interest
payable on the debt instruments are often referred to as "structured
securities". An example of this type of structured security is indexed
commercial paper. The term is also used to describe certain securities issued in
connection with the restructuring of certain foreign obligations.
The term "derivative" is also sometimes used to describe securities
involving rights to a portion of the cash flows from an underlying pool of
mortgages or other assets from which payments are passed through to the owner
of, or that collateralize, the securities. See "Mortgage-Backed and
Asset-Backed Securities," above.
While the judicious use of derivatives by experienced investment
managers such as the Fund's investment advisors can be beneficial, derivatives
also involve risks different from, and, in certain cases, greater than, the
risks presented by more traditional investments. Following is a general
discussion of important risk factors and issues concerning the use of
derivatives that investors should understand before investing in the Funds.
* Market Risk - This is the general risk attendant to all investments that
the value of a particular investment will decline or otherwise change in a way
which is detrimental to the Fund's interest.
* Management Risk - Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the derivative
itself, without the benefit of observing the performance of the derivative under
all possible market conditions. In particular, the use and complexity of
derivatives require the maintenance of adequate controls to monitor the
transactions entered into, the ability to assess the risk that a derivative adds
to a Fund's portfolio and the ability to forecast price, interest rate or
currency exchange rate movements correctly.
* Credit Risk - This is the risk that a loss may be sustained by the Fund
as a result of the failure of another party to a derivative (usually referred to
as a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer or
counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e., margin
requirements) operated by the clearing house in order to reduce overall credit
risk. For privately negotiated derivatives, there is no similar clearing agency
guarantee. Therefore, the Fund's investment advisor considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk - Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly large
or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
* Leverage Risk - Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
* Other Risks - Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to correlate
perfectly with underlying assets, rates and indices. Many derivatives, in
particular privately negotiated derivatives, are complex and often valued
subjectively. Improper valuations can result in increased cash payment
requirements to counterparties or a loss of value to the Fund. Derivatives do
not always perfectly or even highly correlate or track the value of the assets,
rates or indices they are designed to closely track. Consequently, the Fund's
use of derivatives may not always be an effective means of, and sometimes could
be counterproductive to, furthering the Fund's investment objective.
Equipment Trust Certificates (only Strategic Income Fund)
Equipment Trust Certificates are a mechanism for financing the purchase of
transportation equipment, such as railroad cars and locomotives, trucks,
airplanes and oil tankers.
Under an equipment trust certificate, the equipment is used as the security
for the debt and title to the equipment is vested in a trustee. The trustee
leases the equipment to the user, i.e. the railroad, airline, trucking or oil
company. At the same time equipment trust certificates in an aggregate amount
equal to a certain percentage of the equipment's purchase price are sold to
lenders. The trustee pays the proceeds from the sale of certificates to the
manufacturer. In addition, the company using the equipment makes an initial
payment of rent equal to their balance of the purchase price to the trustee,
which the trustee then pays to the manufacturer. The trustee collects lease
payments from the company and uses the payments to pay interest and principal on
the certificates. At maturity, the certificates are redeemed and paid, the
equipment is sold to the company and the lease is terminated.
Generally, these certificates are regarded as obligations of the company
that is leasing the equipment and are shown as liabilities in its balance sheet.
However, the company does not own the equipment until all the certificates are
redeemed and paid. In the event the company defaults under its lease, the
trustee terminates the lease. If another lessee is available, the trustee leases
the equipment to another user and makes payments on the certificates from new
lease rentals.
ADDITIONAL INFORMATION CONCERNING THE INVESTMENTS OF EVERGREEN VA
MASTERS FUND
Because each sub-advisor will be managing its segment of the portfolio
independently from the other sub-advisors, the same security may be held in two
different segments of the portfolio, or may be acquired for one segment of the
portfolio at a time when the sub-advisor of another segment deems it appropriate
to dispose of the security from the other segment. Similarly, under some market
conditions, one or more of the sub-advisors may believe that temporary,
defensive investments in short-term instruments or cash are appropriate when
another sub-advisor or sub-advisors believe continued exposure to the equity
markets is appropriate for their segments of the portfolio.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Shares of the Trust are sold continuously to variable annuity and
variable life insurance accounts of participating insurance companies and to
qualified pension and retirement plans. The Trust may suspend the right of
redemption or postpone the date of payment for shares during any period when (1)
trading on the Exchange is restricted by applicable rules and regulations of the
SEC, (2) the Exchange is closed for other than customary weekend and holiday
closings, (3) the SEC has by order permitted such suspension, or (4) an
emergency exists as determined by the SEC.
The Trust may redeem shares involuntarily if redemption appears
appropriate in light of the Trust's responsibilities under the 1940 Act.
Calculation of Net Asset Value
The Fund calculates its Net Asset Value ("NAV") once daily on Monday
through Friday, as described in the prospectus. The Fund will not compute its
NAV on the days the New York Stock Exchange is closed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities exchange or
the over-the-counter National Market System ("NMS") are valued on the basis of
the last sales price on the exchange where primarily traded or on the NMS prior
to the time of the valuation, provided that a sale has occurred.
(2) Securities traded on an established securities exchange or in the
over-the-counter market for which there has been no sale and other securities
traded in the over-the-counter market are valued at the mean of the bid and
asked prices at the time of valuation.
(3) Short-term investments maturing in more than sixty days, for which
market quotations are readily available, are valued at current market value.
(4) Short-term investments maturing in sixty days or less are valued at
amortized cost, which approximates market.
(5) Securities, including restricted securities, for which market
quotations are not readily available; listed securities or those on NMS if, in
the Fund's opinion, the last sales price does not reflect a current market
value; and other assets are valued at prices deemed in good faith to be fair
under procedures established by the Board of Trustees.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods. The following
is the formula used to calculate average annual total return:
n
P(1+T) =ERV
P= initial payment of $1,000
T= average total return
n= number of years
ERV= ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield quotations
are expressed in annualized terms and may be quoted on a compounded basis.
Yields based on these calculations do not represent the Fund's yield for any
future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30- day yield in
advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
6
Yield=2[(a - b + 1) - 1
-----
cd
Where:
a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
7-Day Current and Effective Yields
If the Fund invests primarily in money market instruments, it may quote its
7-day current yield or effective yield in advertisements or in reports or other
communications to shareholders.
The current yield is calculated by determining the net change, excluding
capital changes and income other than investment income, in the value of a
hypothetical, pre-existing account having a balance of one share at the
beginning of the 7- day base period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
365/7
Effective Yield = [(base period return)] + 1) ] - 1
Non-Standardized Performance
From time to time, the Fund may quote its performance in advertising
and other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average,
Russell 2000 Index or any other commonly quoted index of common stock or fixed
income prices. The Fund's performance may also be compared to those of other
mutual funds having similar objectives. This comparative performance would be
expressed as a ranking prepared by Lipper Analytical Services, Inc. or similar
independent services monitoring mutual fund performance. The Fund's performance
will be calculated by assuming, to the extent applicable, reinvestment of all
capital gains distributions and income dividends paid. Any such comparisons may
be useful to investors who wish to compare a Fund's past performance with that
of its competitors. Of course, past performance cannot be a guarantee of future
results.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable to
regulated investment companies ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). (Such qualification does not
involve supervision of management or investment practices or policies by the
Internal Revenue Service.) In order to qualify as a RIC, the Fund must, among
other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to proceeds from securities loans, gains from
the sale or other disposition of securities or foreign currencies and other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities; and (ii) diversify its
holdings so that, at the end of each quarter of its taxable year, (a) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
government securities and other securities limited in respect of any one issuer,
to an amount not greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. government securities and securities of other regulated investment
companies). By so qualifying, the Fund is not subject to federal income tax if
it timely distributes its investment company taxable income and any net realized
capital gains. For a discussion of the tax consequences of variable annuity
contracts or variable life insurance policies, refer to the prospectus of the
variable annuity contracts and variable life insurance policies offered by the
participating insurance company. Variable annuity contracts and variable life
insurance policies purchased through insurance company separate accounts provide
for the accumulation of all earnings from interest, dividends, and capital
appreciation without current federal income tax liability for an individual
owner. Different rules apply to corporations, taxable trusts, or other entities
which own variable annuity contracts. Depending on the variable annuity contract
or variable life insurance policy, distributions from the contract or policy may
be subject to ordinary income tax and, in addition, a 10% penalty tax on
distributions before age 59-1/2. Only the portion of a distribution attributable
to income on the investment in the contract or policy is subject to federal
income tax. Investors should consult with competent tax advisors for a more
complete discussion of possible tax consequences in a particular situation.
The Fund will not be subject to the 4% federal excise tax imposed on
registered investment companies that do not distribute all of their income and
gains each calendar year because such tax does not apply to a registered
investment company whose only shareholders are segregated asset accounts of
participating insurance companies held in connection with the variable annuity
contracts and/or variable life insurance policies.
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts and variable life insurance
policies held. The Code provides that variable annuity contracts and/or variable
life insurance policies shall not be treated as an annuity contract or life
insurance policy for the current or any prior period for which the investments
are not, in accordance with regulations prescribed by the U.S. Treasury
Department, adequately diversified. Disqualification of the contract or policy
as an annuity contract or life insurance policy would result in immediate
imposition of federal income tax on variable annuity contracts and variable life
insurance policy owners with respect to earnings allocable to the contract or
policy (including, upon disqualification, accumulated earnings), and the tax
liability would generally arise prior to the receipt of payments under the
contract. Section 817(h)(2) of the Code is a safe harbor provision which
provides that variable annuity contracts and variable life insurance policies
meet the diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated investment
company and no more than 55% of the total assets consists of cash, cash items,
U.S. government securities and securities of other regulated investment
companies. The U.S. Treasury Department has issued Regulations (Treas. Reg.
section 1.817-5) that establish diversification requirements for the investment
portfolios underlying variable insurance contracts. The Regulations amplify the
diversification requirements for variable annuity contracts and variable life
insurance policies set forth in Section 817(h) of the Code and provide an
alternative to the safe harbor provision described above. Under the Regulations,
an investment portfolio will be deemed adequately diversified if: (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of such value is represented by any two
investments; (3) no more than 80% of such value is represented by any three
investments; and (4) no more than 90% of such value is represented by any four
investments. For purposes of these Regulations all securities of the same issuer
are treated as a single investment. The Regulations provide that, in the case of
a regulated investment company whose shares are available to the public only
through variable insurance contracts which meet certain other requirements, the
diversification tests are applied by reference to the underlying assets owned by
the regulated investment company rather than by reference to the shares of the
regulated investment company owned under the annuity contract. Each Fund intends
to meet the requirements for application of the diversification tests on this
look-through basis. The Code provides that for purposes of determining whether
or not the diversification standards imposed on the underlying assets of
variable insurance contracts by Section 817(h) of the Code have been met, each
U.S. government agency or instrumentality shall be treated as a separate issuer.
The Fund will be managed in such a manner as to comply with the
diversification requirements. It is possible that in order to comply with the
diversification requirements, less desirable investment decisions may be made
which would affect the investment performance of the Fund.
Other Tax Considerations
The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisors regarding specific questions
relating to federal, state and local tax consequences of investing in shares of
the Fund. Each shareholder who is not a U.S. person should consult his or her
tax advisor regarding the U.S. and foreign tax consequences of ownership of
shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under a
tax treaty) on amounts treated as income from U.S. sources under the Code.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell them
through brokerage transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and sell
them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Masters may incur higher brokerage costs than would be the case if a single
investment advisor or sub-advisor were managing the entire portfolio.
Selection of Brokers
When buying and selling portfolio securities, the investment advisor seeks
brokers who can provide the most benefit to the Fund. When selecting a broker,
an investment advisor will primarily look for the best price at the lowest
commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and analyses
concerning issuers, industries, securities and economic factors and
(b) other information useful in making investment decisions.
The Fund may pay higher brokerage commissions to a broker providing it with
research services, as defined in item 6, above. Pursuant to Section 28(e) of the
Securities Exchange Act of 1934, this practice is permitted if the commission is
reasonable in relation to the brokerage and research services provided. Research
services provided by a broker to the investment advisor do not replace, but
supplement, the services the investment advisor is required to deliver to the
Fund. It is impracticable for the investment advisor to allocate the cost, value
and specific application of such research services among its clients because
research services intended for one client may indirectly benefit another.
When selecting a broker for portfolio trades, the investment advisor may
also consider the amount of Fund shares a broker has sold, subject to the other
requirements described above.
If the Fund is advised by Evergreen Asset Management Corp. ("EAMC"), Lieber
& Company, an affiliate of EAMC and a member of the New York and American Stock
Exchanges, will to the extent practicable effect substantially all of the
portfolio transactions effected on those exchanges for the Fund.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for an investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of net asset value applicable to such share. Shares generally vote together as
one class on all matters. Classes of shares of the Fund have equal voting
rights. No amendment may be made to the Declaration of Trust that adversely
affects any class of shares without the approval of a majority of the votes
applicable to the shares of that class. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the votes applicable to
shares voting for the election of Trustees can elect 100% of the Trustees to be
elected at a meeting and, in such event, the holders of the remaining shares
voting will not be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered, open-end investment companies such as the Trust. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer, FUNB and
its affiliates are subject to, and in compliance with, the aforementioned laws
and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB and its affiliates were prevented from
continuing to provide for services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory
Agreement"). Under the Advisory Agreement, and subject to the supervision of the
Trust's Board of Trustees, the investment advisor furnishes to the Fund
investment advisory, management and administrative services, office facilities,
and equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. The investment advisor pays for all of the
expenses incurred in connection with the provision of its services. The Fund
pays for all charges and expenses, other than those specifically referred to as
being borne by the investment advisor, including, but not limited to, (1)
custodian charges and expenses; (2) bookkeeping and auditors' charges and
expenses; (3) transfer agent charges and expenses; (4) fees and expenses of
Independent Trustees (Trustees who are not "interested" persons of the Trust as
defined in the 1940 Act); (5) brokerage commissions, brokers' fees and expenses;
(6) issue and transfer taxes; (7) taxes and trust fees payable to governmental
agencies; (8) the cost of share certificates; (9) fees and expenses of the
registration and qualification of the Fund and its shares with the SEC or under
state or other securities laws; (10) expenses of preparing, printing and mailing
prospectuses, SAIs, notices, reports and proxy materials to shareholders of the
Fund; (11) expenses of shareholders' and Trustees' meetings; (12) charges and
expenses of legal counsel for the Fund and for the Independent Trustees on
matters relating to the Fund; (13) charges and expenses of filing annual and
other reports with the SEC and other authorities; and (14) all extraordinary
charges and expenses of the Fund. For information on advisory fees paid by the
Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services. See
"Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, James Howell, the Vice Chairman of the Board, and Messrs. Michael
Scofield, and Russell Salton, each of whom is an Independent Trustee. The
Executive Committee recommends Trustees to fill vacancies, prepares the agenda
for Board Meetings and acts on routine matters between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen Fund complex.
Name Position Principal Occupations for Last
with Trust Five Years
Laurence B. Trustee Real estate developer and
Ashkin construction consultant; and
(DOB: 2/2/28) President of Centrum Equities and
Centrum Properties, Inc.
Charles A. Trustee Investment Counselor to Appleton
Austin III Partners, Inc.; former Director,
(DOB: 10/23/34) Executive Vice President and
Treasurer, State Street Research
& Management Company (investment
advice); Director, The Andover
Companies (Insurance); and
Trustee, Arthritis Foundation of
New England
K. Dun Gifford Trustee Trustee, Treasurer and Chairman
(DOB: 10/12/38) of the Finance Committee, Cam
bridge College; Chairman Emeritus and
Director, American Institute of Food and
Wine; Chairman and President, Oldways
Preservation and Exchange Trust (education);
former Chairman of the Board, Director, and
Executive Vice President, The London Harness
Company; former Managing Partner, Roscommon
Capital Corp.; former Chief Executive
Officer, Gifford Gifts of Fine Foods; and
former Chairman, Gifford, Drescher &
Associates (environmental consult ing).
James S. Howell Chairman of Former Chairman of the
(DOB: 8/13/24) the Board of Distribution Foundation for the
Trustees Carolinas; and former Vice
President of Lance Inc. (food
manufacturing).
Leroy Keith, Trustee Chairman of the Board and Chief
Jr. Executive Officer, Carson
(DOB: 2/14/39) Products Company; Director of
Phoenix Total Return Fund and Equifax, Inc.;
Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big
Edge Series Fund; and former President,
Morehouse College.
Gerald M. Trustee Sales Representative with Nucor-
McDonnell Yamoto, Inc. (steel producer).
(DOB: 7/14/39)
Thomas L. Trustee Former Vice President and
McVerry Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and former
Director of Carolina Cooperative
Federal Credit Union.
William Walt Trustee Partner in the law firm of
Pettit William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Trustee Vice Chair and former Executive
Richardson Vice President, DHR Interna
(DOB: 9/14/41) tional, Inc. (executive recruit
ment); former Senior Vice
President, Boyden International
Inc. (executive recruitment); and
Director, Commerce and Industry
Association of New Jersey, 411
International, Inc., and J&M
Cumming Paper Co.
Russell A. Trustee Medical Director, U.S. Health
Salton, III MD Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care
Consultant; and former President,
Primary Physician Care.
Michael S. Vice Attorney, Law Offices of Michael
Scofield Chairman of S. Scofield.
(DOB: 2/20/43) the Board of
Trustees
Richard J. Trustee Former Chairman, Environmental
Shima Warranty, Inc. (insurance
(DOB: 8/11/39) agency); Executive Consultant,
Drake Beam Morin, Inc. (executive
outplacement); Director of Connecticut
Natural Gas Corpora tion, Hartford Hospital,
Old State House Association, Middlesex
Mutual Assurance Company, and Enhance
Financial Services, Inc.; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee,
Greater Hartford YMCA; former Director, Vice
Chairman and Chief Investment Officer, The
Travelers Corpora tion; former Trustee,
Kingswood-Oxford School; and former Managing
Director and Consultant, Russell Miller,
Inc.
William J. President Executive Vice
Tomko* and President/Operations, BISYS Fund
(DOB:8/30/58) Treasurer Services.
Nimish S. Vice Vice President, Tax, BISYS Fund
Bhatt* President Services; former Assistant Vice
(DOB: 6/6/63) and President, EAMC/First Union Bank;
Assistant former Senior Tax
Treasurer Consulting/Acting Manager,
Investment Companies Group,
Pricewaterhouse-Coopers LLP, New
York.
Bryan Haft* Vice Team Leader, Fund Administration,
(DOB: 1/23/65) President BISYS Fund Services.
Michael H. Secretary Senior Vice President and
Koonce Assistant General Counsel, First
(DOB: 4/20/60) Union Corporation; former Senior
Vice President and General
Counsel, Colonial Management
Associates, Inc.
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
CORPORATE BOND RATINGS
The Fund relies on ratings provided by independent rating services to help
determine the credit quality of bonds and other obligations the Fund intends to
purchase or already owns. A rating is an opinion of an issuer's ability to pay
interest and/or principal when due. Ratings reflect an issuer's overall
financial strength and whether it can meet its financial commitments under
various economic conditions.
If a security held by the Fund loses its rating or has its rating reduced
after the Fund has purchased it, the Fund is not required to sell or otherwise
dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The `Credit Quality'
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
COMPARISON OF LONG-TERM BOND RATINGS
MOODY`S S&P FITCH Credit Quality
Aaa AAA AAA Excellent Quality (lowest
risk)
Aa AA AA Almost Excellent Quality
(very low risk)
A A A Good Quality (low risk)
Baa BBB BBB Satisfactory Quality (some
risk)
Ba BB BB Questionable Quality
(definite risk)
B B B Low Quality (high risk)
Caa/Ca/ CCC/CC/ CCC/CC/ In or Near Default
C C C
D DDD/DD/ In Default
D
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as `gilt
edged.' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e.
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC,
and C are regarded as having significant speculative characteristics. BB
indicates the least degree of speculation and C the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation. CC An
obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and
is not paid. An exception is made if there is a grace period and
S&P believes that a payment will be made, in which case the
rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action. An exception is made if
S&P expects that debt service payments will continue to be made on a
specific issue. In the absence of a payment default or bankruptcy filing, a
technical default (i.e., covenant violation) is not sufficient for
assigning a D rating.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category. Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories. S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and
is not paid. An exception is made if there is a grace period and
S&P believes that a payment will be made, in which case the
rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action, An exception is made if
S&P expects that debt service payments will continue to be made on a
specific issue. In the absence of a payment default or bankruptcy filing, a
technical default (i.e., covenant violation) is not sufficient for
assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added `+' to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or the
Distributor, and no person is entitled to rely on any information or
representation not contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART C
OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- --------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Post-Effective
Amendment No. 5 filed on March 20, 1998
(b) By-Laws Incorporated by reference to
Registrant's Post-Effective
Amendment No. 5 filed on March 20, 1998
(c) Provisions of instruments Incorporated by reference to
defining the rights of holders Registrant's Post-Effective
of the securities being Amendment No. 7 filed on June 5, 1998.
registered are contained in the
Declaration of Trust Articles II,
III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II,
III and VIII
(d)(1) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant Registrant's Post-Effective
and First Union National Bank Amendment No. 5 filed on March 20, 1998
(d)(2) Investment Advisory and Incorporated by reference to
Management Agreement between the Registrant's Post-Effective
Registrant and Evergreen Asset Amendment No. 5 filed on March 20, 1998
Management Corp.
(d)(3) Sub-Advisory Agreement between Incorporated by reference to
Evergreen Asset Management Corp. Registrant's Post-Effective
and Lieber & Company Amendment No. 8 filed on October 19, 1998.
(d)(4) Portfolio Management Incorporated by reference to
Agreement between sub-advisors Registrant's Post-Effective
to Evergreen VA Masters Fund and Amendment No. 9 filed on February 26, 1999.
First Union National Bank.
(d)(5) Investment Advisory and Incorporated by reference to
Management Agreement between the Registrant's Post-Effective
Registrant and Evergreen Amendment No. 7 filed on June 5, 1998.
Investment Management Company
(formerly Keystone Investment
Management Company), as
supplemented
(e)(1) Participation Agreement between
Registrant and Nationwide
Life Insurance Company
(e)(2) Participation Agreement between
Registrant and The Variable Annuity
Life Insurance Company
(f) Not applicable
(g) Custodian Agreement between the Incorporated by reference to
Registrant and State Street Bank Registrant's Post-Effective
and Trust Company Amendment No. 6 filed on April 28, 1998
(h)(1) Administration Agreement Incorporated by reference to
between Evergreen Investment Registrant's Post-Effective
Services, Inc. and the Amendment No. 5 filed on March 20, 1998
Registrant
(h)(2) Transfer Agent Agreement Incorporated by reference to
between the Registrant and Registrant's Post-Effective
Evergreen Service Company Amendment No. 6 filed on April 28, 1998
(i) Opinion and Consent of Sullivan Incorporated by reference to
& Worcester LLP Registrant's Post-Effective
Amendment No. 5 filed on March 20, 1998
(j) Consent of KPMG Peat Marwick LLP Incorporated by reference to
Registrant's Post-Effective
Amendment No. 9 filed on February 26, 1999.
(k) Not applicable
(l) Not applicable
(m) Not applicable
(n) Financial Data Schedules Incorporated by reference to
Registrant's Post-Effective
Amendment No. 9 filed on February 26, 1999.
(o) Not applicable
(p) Powers of Attorney Incorporated by reference to
Registrant's Post-Effective
Amendment No. 6 filed on April 28, 1998
</TABLE>
Item 24. Persons Controlled by or Under Common Control with
Registrant.
None
Item 25. Indemnification
Registrant has obtained from a major insurance carrier and trustees and
officers liability policy covering certain types of errors and omissions.
Provisions for the indemnification of the Registrant's Trustee and
officers are also contained in the Registrant's Declaration of Trust.
Provisions for the indemnification of Registrant's Investment Advisors
are contained in their respective Investment Advisory and Management Agreements.
Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in each Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.
Provisions for the indemnification of Evergreen Service Company, the
Registrant's transfer agent, are contained in the Master Transfer and
Recordkeeping Agreement between Evergreen Service Company and the Registrant.
Provisions for the indemnification of State Street Bank and Trust
Company, the Registrant's custodian, are contained in the Custodian Agreement
between State Street Bank and Trust Company and the Registrant.
Item 26. Business or Other Connections of Investment Adviser.
The Directors and principal executive officers of First Union National
Bank are:
Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank
Anthony P. Terracciano President, First Union Corporation; President
First Union National Bank
John R. Georgius Vice Chairman, First Union Corporation;
Vice Chairman, First Union National Bank
Marion A. Cowell, Jr. Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President
All of the above persons are located at the following address: First
Union National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.
The information required by this item with respect to Evergreen
Investment Management Company (formerly Keystone Investment Management Company)
is incorporated by reference to the Form ADV (File No. 801-8327) of Evergreen
Investment Management Company.
Item 27. Principal Underwriters.
Evergreen Distributor, Inc., acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
"fund complex" as such term is defined in Item 22(a) of Schedule 14A under the
Securities Exchange Act of 1934.
The Directors and principal executive officers of Evergreen
Distributor, Inc. are:
Lynn C. Mangum Director, Chairman and Chief Executive Officer
Dennis Sheehan Director, Chief Financial Officer
J. David Huber President
Kevin J. Dell Vice President, General Counsel and Secretary
All of the above persons are located at the following address:
Evergreen Distributor, Inc., 90 Park Avenue, New York, New York, 10016
The Registrant has not paid, directly or indirectly, any commissions or
other compensation to the Prinicipal Underwriter in the last fiscal year.
Item 28. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Evergreen Investment Services, Inc., Evergreen Service Company and
Evergreen Investment Management Company (formerly Keystone Investment Management
Company), all located at 200 Berkeley Street, Boston, Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College
Street, Charlotte, North Carolina 28288
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Item 29. Management Services.
Not Applicable
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Columbus, and State of Ohio, on the 30th day of
April, 1999.
EVERGREEN VARIABLE ANNUITY TRUST
By: /s/ William J. Tomko
---------------------------
Name: William J. Tomko
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 30th day of April, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William J. Tomko /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------- --------------------- -------------------------
William J. Tomko Laurence B. Ashkin* Charles A. Austin III *
President and Treasurer Trustee Trustee
(Principal Financial and
Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ------------------ ------------------ ----------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Chairman of the Board Trustee
and Trustee
/s/ Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ---------------------- --------------------- ----------------------
Gerald M. McDonnell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD /s/ Leroy Keith, Jr.
- ---------------------- ---------------------------- ----------------------
David M. Richardson* Russell A. Salton, III MD* Leroy Keith, Jr.*
Trustee Trustee Trustee
/s/ Richard J. Shima
- -------------------
Richard J. Shima*
Trustee
</TABLE>
*By: /s/ Beth Werths
- --------------------------------
Beth Werths
Attorney-in-Fact
*Beth Werths, by signing her name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
(e)(1) Participation Agreement between
Registrant and Nationwide Life
Insurance Company
(e)(2) Participation Agreement between
Registrant and The Variable Annuity
Life Insurance Company
Fund Participation Agreement
This Fund Participation Agreement ("Agreement"), dated as of the 16th day of
December, 1998 is made by and between Nationwide Life Insurance Company and/or
Nationwide Life and Annuity Insurance Company (separately or collectively
"Nationwide") on behalf of the Nationwide separate accounts identified on
Exhibit A which is attached hereto and may be amended from time to time
("Variable Accounts"), and Evergreen Variable Annuity Trust and Evergreen Equity
Trust (collectively the "Funds" and/or "Evergreen"), upon which the parties
hereto may mutually agree to amend from time to time and which the Funds will
make available to serve as an underlying investment medium for variable annuity
contracts and/or variable life insurance policies (collectively referred to
herein as the "Contracts") as set forth in Exhibit A, subject to the following
conditions:
WHEREAS, the Contracts allow for the allocation of net amounts received by
Nationwide to separate sub-accounts of the Variable Accounts for investment in
shares of the Funds and other similar funds; and
WHEREAS, selection of a particular sub-account (corresponding to a particular
Fund) is made by the Contract owner; or, in the case of certain group Contracts,
by participants in various types of retirement plans which have purchased such
group Contracts, and such Contract owners and/or participants may reallocate
their investment options among the sub-accounts of the Variable Accounts in
accordance with the terms of the Variable Accounts in accordance with the terms
of the Contracts; and
WHEREAS, Nationwide and Evergreen mutually desire the inclusion of the Funds as
underlying investment media for variable life insurance policies and/or variable
annuity contracts (collectively, the "Contracts") issued by Nationwide;
NOW THEREFORE, Nationwide and Evergreen, in consideration of the promises and
undertakings described herein, agree as follows:
1. Nationwide represents and warrants that the Variable Accounts have been
established and are in good standing under Ohio Law; and the Variable
Accounts have been registered as unit investment trusts under the Investment
Company Act of 1940 (the "1940 Act") or are exempt from registration pursuant
to section 3(c)(11) of the 1940 Act;
2. Each party recognizes that the services provided for under this Agreement are
not exclusive and that the same skill will be used in performing services in
similar contexts. Nationwide will use its best efforts to give equal emphasis
and promotion to shares of the Funds as is given to other underlying
investments of the Variable Accounts.
3. Subject to the terms and conditions of this Agreement, Nationwide shall be
appointed to, and agrees, to act as a limited agent of Evergreen, for the
sole purpose of receiving instructions for the purchase and redemption of
Fund shares (from Contract owners or participants making investment
allocation decisions under the Contracts) prior to the close of regular
trading each Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Funds calculate
their net asset value as set forth in the Funds' most recent Prospectuses and
Statements of Additional Information. Except as particularly stated in this
paragraph, Nationwide shall have no authority to act on behalf of Evergreen
or to incur any cost or liability on its behalf.
Evergreen, through its service providers, will use its reasonable best
efforts to provide closing net asset value, change in netasset value,
dividend or daily accrual rate information and capital gain information by
7:00 p.m. Eastern Time each Business Day to Nationwide. Nationwide shall use
this data to calculate unit values. Unit values shall be used to process that
same Business Day's Variable Account transactions. Orders for purchases or
redemptions shall be placed with Evergreen or its specified agent no later
than 9:00 a.m. the next business day in order to get the net asset value of
the previous business day. Orders for shares of Funds shall be accepted at
the time they are received by Evergreen or its specified agent and at the net
asset value price determined as of the close of trading on the previous
Business Day. Evergreen or its specified agent will not accept any order made
on a conditional basis or subject to any delay or contingency. Nationwide
shall only place purchase orders for shares of Funds on behalf of its
customers whose addresses recorded on Nationwide's books are in a state or
other jurisdiction in which the Funds are registered or qualified for sale,
or are exempt from registration or qualification as confirmed in writing by
Evergreen or its specified agent.
Payment for net purchases shall be wired to a custodial account designated by
Evergreen and payment for net redemptions will be wired to an account
designated by Nationwide. Dividends and capital gain distributions shall be
reinvested in additional Fund shares at net asset value. Notwithstanding the
above, Evergreen or its specified agent shall not be held responsible for
providing Nationwide with ex-date net asset value, change in net asset value,
dividend or capital gain information when the New York Stock Exchange is
closed, when an emergency exists making the valuation of net assets not
reasonably practicable, or during any period when the Securities and Exchange
Commission ("SEC") has by order permitted the suspension of pricing shares
for the protection of shareholders.
Nationwide agrees to provide Evergreen or its specified agent, upon request,
written reports indicating the number of shareholders that hold interests in
the Funds and such other information (including books and records) that
Evergreen or its specified agent may reasonably request or as may be
necessary or advisable to enable it to comply with any law, regulation or
order.
4. All expenses incident to the performance by Evergreen under this Agreement
shall be paid by Evergreen. Evergreen shall promptly provide Nationwide, or
cause Nationwide to be provided with, a reasonable quantity of the Funds'
Prospectuses, Statements of Additional Information and any supplements.
Nationwide will bear the responsibility and correlative expense for
administrative and support services for Contract owners. Evergreen recognizes
Nationwide as the sole shareholder of shares of the Funds issued under this
Agreement.
5. Nationwide and its agents shall make no representations concerning the Funds
or Fund shares except those c ontained in the Funds' then current
Prospectuses, Statements of Additional Information or other documents
produced by Evergreen (or an entity on its behalf) which contain information
about the Funds.
Nationwide agrees to allow at least ten days for Evergreen to review any
advertising and sales literature drafted by Nationwide (or agents on its
behalf) with respect to the Funds prior to submitting such material to any
regulator.
6. Evergreen and Nationwide hereby agree and represent that each currently
believe their information technology systems will be Year 2000 Compliant in
accordance with the Year 2000 Compliance requirements of the SEC and the
National Association of Securities Dealers ("NASD"). Each party shall notify
the other if there is a change in the status of their informational
technology systems or upon having a reasonable basis for believing that their
informational technology systems will not be Year 2000 Compliant. Evergreen
agrees to provide Nationwide with written assurances by May 1, 1999, that
their systems or software will be Year 2000 complaint. Evergreen is aware
that failure to be in compliance with Year 2000 requirements can result in
termination of this agreement.
"Year 2000 Compliant" or "Year 2000 Compliance" shall mean that the systems
or software in question shall be able to accurately process date or
date-related data, without creating any logical or mathematical
inconsistencies, from, into and between the twentiet h and twenty-first
centuries, when used in accordance with the specifications set forth for such
systems or software; provided, however, that neither party shall be
responsible for any failure of its systems or software to be Year 2000
Compliant which is caused by or related to the interaction or interface of
such systems or software with the systems or software of a third party which
are not Year 2000 Compliant.
7. Evergreen represents that the Funds are currently qualified as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986
(the "Code"), as amended, and that the Funds shall make every effort to
maintain such qualification. Evergreen shall promptly notify Nationwide upon
having a reasonable basis for believing that the Funds have ceased to so
qualify, or that they may not qualify as such in the future.
Evergreen represents that the VA Funds currently comply with the
diversification requirements pursuant to Section 817(h) of the Code and
Section 1.817-5(b) of the Federal Tax Regulations and that Evergreen will
make every effort to maintain the VA Funds' compliance with such
diversification requirements, unless the Funds are otherwise exempt from
section 817(h) and/or except as otherwise disclosed in each Fund's
prospectus. Evergreen will notify Nationwide promptly upon having a
reasonable basis for believing that the VA Funds have ceased to so qualify,
or that the VA Funds might not so qualify in the future. Unless otherwise
exempt, Evergreen shall provide to Nationwide a statement indicating
compliance by the VA Funds with Section 817(h) to be received by Nationwide
no later than twenty-five (25) days following the end of each calendar
quarter.
Nationwide represents that the Contracts are currently treated as annuity
contracts or life insurance policies, whichever is appropriate under
applicable provisions of the Code, and that it shall make every effort to
maintain such treatment. Nationwide will promptly notify Evergreen upon
having a reasonable basis for believing that the Contracts have ceased to be
treated as annuity contracts or life insurance polices, or that the Contracts
may not be so treated in the future.
Unless a Fund is exempt from the requirements of section 817(h), Nationwide
represents that each Variable Account is a "segregated asset account" and
that interests in each Variable Account are offered exclusively through the
purchase of a "variable contract", within the meaning of such terms pursuant
to section 1.817-5(f)(2) of the Federal Tax Regulations, that it shall make
every effort to continue to meet such definitional requirements, and that it
shall notify Evergreen immediately upon having a reasonable basis for
believing that such requirements have ceased to be met or that they may not
be met in the future.
Nationwide represents and warrants that the Contracts are, or will be,
registered under the 1933 Act to the extent required by the 1933 Act prior to
any issuance or sale of the Contracts, the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and state
law, and the sale of the Contracts will comply in all material respects with
state insurance suitability requirements.
8. Within five (5) Business Days after the end of each calendar month, Evergreen
shall provide Nationwide a monthly statement of account, which shall confirm
all transactions made during that particular month in the Variable Accounts.
9. Nationwide agrees to inform Evergreen of the existence of or any potential
for any material conflict of interest between the interests of the Contract
owners of the Variable Account investing in the Funds and/or any other
separate account of any other insurance company investing in the Funds. A
material irreconcilable conflict may arise for a variety of reasons,
including but not limited to:
(a) an action by any state insurance or other regulator authority;
(b) a change in applicable federal or state insurance, tax or securities laws
or regulations, public ruling, private letter ruling, or any similar
action by insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed; or
(e) a difference in voting instructions given by Contract owners or by
contract owners of different life insurance companies currently utilizing
the Funds. It is agreed that if it is determined by a majority of the
members of the Board of Trustees of the Funds, or a majority of its
disinterested Trustees, that a material conflict exists affecting
Nationwide, Nationwide shall, at its own expense, take whatever steps
necessary to remedy or eliminate such material conflict, which steps may
include, but are not limited to:
(a) withdrawing the assets allocable to some or all of the separate account
from the Funds and
(i) reinvesting such assets in a different investment medium, including
another Fund; or
(ii) submitting the question of whether such segregation should be
subjected to a vote of all affected Contract owners, which may result
in segregating the assets of any particular group (i.e., annuity
Contract owners, variable life insurance Contract owners or qualified
Contract owners) that votes in favor of such segregation or offering
to the affected Contract owners the option of making such a change;
or
(b) establishing a new registered management investment company or managed
separate account and obtaining any necessary approvals or orders of the
SEC in connection therewith.
Evergreen agrees to inform Nationwide of the existence of or any potential for
any material conflict of interest and any possible implications of the same. A
material irreconcilable conflict may arise for a variety of reasons, including
but not limited to:
(a) an action by any state regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities laws
or regulations, public ruling, private letter ruling, or any similar
action by insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding; or
(d) the manner in which the investments of any Fund are being managed.
It is agreed that if it is determined by Nationwide that a material conflict
exists affecting Evergreen, Evergreen shall, at its own expense, take whatever
steps are necessary to remedy or eliminate such material conflict.
10. This Agreement shall terminate as to the sale and issuance of new Contracts:
(a) at the option of Nationwide or Evergreen upon at least 60 days advance
written notice to the other;
(b) at any time, upon Evergreen's election, if the Funds determine that
liquidation of the Funds is in the best interest of the Funds and their
beneficial owners. Reasonable advance notice of election to liquidate
shall be furnished by Evergreen to permit the substitution of Fund shares
with the shares of another investment company pursuant to SEC regulation;
(c) if the Contracts are not treated as annuity contracts or life insurance
policies by the applicable regulators or under applicable rules or
regulations;
(d) if the Variable Accounts are not deemed "segregated asset accounts" by the
applicable regulators or under applicable rules or regulations;
(e) at the option of Nationwide, if Fund shares are not available for any
reason to meet the requirements of Contracts as determined by Nationwide.
Reasonable advance notice of election to terminate (and time to cure)
shall be furnished by Nationwide;
(f) at the option of Nationwide or Evergreen, upon institution of relevant
formal proceedings against the broker-dealer(s) marketing the Contracts,
the Variable Accounts, Nationwide or the Funds by the NASD, IRS, the
Department of Labor, the SEC, state insurance departments or any other
regulatory body;
(g) upon a decision by Nationwide, in accordance with regulations of the SEC,
to substitute such Fund shares with the shares of another investment
company for Contracts for which the Fund shares have been selected to
serve as the underlying investment medium. Nationwide shall give at least
60 days written notice to the Funds and Evergreen of any proposal to
substitute Fund shares;
(h) upon assignment of this Agreement unless such assignment is made with the
written consent of each other party; and
(i) in the event Fund shares are not registered, issued or sold pursuant to
Federal law, or such law precludes the use of Fund shares as an underlying
investment medium of Contracts issued or to be issued by Nationwide.
Prompt written notice shall be given by either party to the other in the
event the conditions of this provision occur.
11. Each notice required by this Agreement shall be given orally and confirmed
in writing to:
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza 1-09-V3
Columbus, Ohio 43215
Attention: Senior Vice President - Life Company Operations
With a copy to:
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza 1-09-V3
Columbus, Ohio 43215
Attention: Compliance Manager - Securities
Evergreen:
Evergreen Funds
200 Berkeley Street
Boston, Massachusetts 02116-9000
Attention: Legal Department
And a copy to:
Evergreen Funds
200 Berkeley Street
Boston, Massachusetts 02116-9000
Attention: Charles Marquardt
Any party may change its address by notifying the other party(ies) in
writing.
12. So long as and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners,
Nationwide shall distribute all proxy material furnished by Evergreen
(provided that such material is received by Nationwide at least 10 business
days prior to the date scheduled for mailing to Contract owners) and shall
vote Fund shares in accordance with instructions received from the Contract
owners who have such interests in such Fund shares. Nationwide shall vote
the Fund shares for which no instructions have been received in the same
proportion as Fund shares for which said instructions have been received
from Contract owners, provided that such proportional voting is not
prohibited by the Contract owner's related plan or trust document.
Nationwide and its agents will in no way recommend action in connection with
or oppose or interfere with the solicitation of proxies for the Fund shares
held for the benefit of such Contract owners.
Nationwide will provide to Evergreen at least one complete copy of each
report, solicitation for voting instructions, application for exemption,
request for no-action relief, and any amendment to any of the above (or any
amendment to the registration statement, prospectus, statement of additional
information, piece of sales literature or other promotional material) that
relates to the Contracts or the Account, contemporaneously with the filing
of the document with the Commission, the NASD, or other regulatory
authorities.
Evergreen will provide to Nationwide at least one complete copy of each
report, solicitation for voting instructions, application for exemption,
request for no-action relief, and any amendment to any of the above (or any
amendment to the registration statement, prospectus, statement of additional
information, piece of sales literature or other promotional material) that
relates to the Contracts or the Account, contemporaneously with the filing
of the document with the Commission, the NASD, or other regulatory
authorities.
13.
(a) Nationwide agrees to reimburse and/or indemnify and hold harmless
Evergreen and each of its directors, officers, employees, agents and each
person, if any, who controls Evergreen within the meaning of the
Securities Act of 1933 (the "1933 Act") (collectively, "Affiliated Party")
against any losses, claims, damages, liabilities, or expenses, including
amounts paid in settlement with the written consent of Nationwide
("Losses"), to which Evergreen or any such Affiliated Party may become
subject, under the 1933 Act or otherwise, insofar as such Losses (or
actions in respect thereof) arise out of or are based upon, but not
limited to:
(i) any untrue statement or alleged untrue statement of any material fact
contained in information furnished by Nationwide;
(ii) the omission or the alleged omission to state in the Registration
Statements or Prospectuses of the Variable Accounts a material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(iii) conduct, statements or representations of Nationwide or its agents,
with respect to the sale and distribution of Contracts for which Fund
shares are an underlying investment;
(iv) the failure of Nationwide to provide the services and furnish the
materials under the terms of this Agreement;
(v) a breach of this Agreement or of any of the representations contained
herein;
(vi) any failure to register the Contracts or the Variable Accounts under
federal or state securities laws, state insurance laws or to
otherwise comply with such laws, rules, regulations or orders; or
(vii) wrongful conduct in administration of the Contracts or Variable
Accounts.
Provided however, that Nationwide shall not be liable in any such case to
the extent any such statement, omission or representation or such alleged
statement, alleged omission or alleged representation was made in reliance
upon and in conformity with written information furnished to Nationwide by
or on behalf of Evergreen specifically for use therein.
Nationwide shall reimburse any legal or other expenses reasonably incurred
by Evergreen or any Affiliated Party in connection with investigating or
defending any such Losses, provided, however, that Nationwide shall have
prior approval of the use of said counsel or the expenditure of said fees.
This indemnity agreement shall be in addition to any liability which
Nationwide may otherwise have.
(b) Evergreen agrees to indemnify and hold harmless Nationwide and each of its
directors, officers, employees, agents and each person, (collectively,
"Nationwide Affiliated Party"), who controls Nationwide within the meaning
of the 1933 Act against any Losses to which Nationwide or any such
Nationwide Affiliated Party may become subject, under the 1933 Act or
otherwise, insofar as such Losses (or actions in respect thereof) arise out
of or are based upon; but not limited to:
(i) any untrue statement or alleged untrue statement of any material fact
contained in any information furnished by Evergreen, including but not
limited to, the Registration Statements, Prospectuses or sales
literature of the Funds;
(ii) the omission or the alleged omission to state in the Registration
Statements or Prospectuses of the Funds a material fact required to be
stated therein or necessary to make the statements therein not
misleading;
(iii) Evergreen's failure to keep the Funds fully diversified and qualified
as regulated investment companies as required by the applicable
provisions of the Code, the 1940 Act, and the applicable regulations
promulgated thereunder;
(iv) the failure of Evergreen to provide the services and furnish the
materials under the terms of this Agreement;
(v) a breach of this Agreement or of any of the representations contained
herein;
(vi) any failure to register the Funds under federal or state securities
laws or to otherwise comply with such laws, rules, regulations or
orders; or
(vii) wrongful conduct in administration of the Funds.
Provided however, that Evergreen shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an act or omission of Nationwide or untrue statement or omission
or alleged omission made in conformity with written information furnished to
Evergreen by Nationwide specifically for use therein.
Evergreen shall reimburse any reasonable legal or other expenses reasonably
incurred by Nationwide or any Nationwide Affiliated Party in connection with
investigating or defending any such Losses, provided, however, that
Evergreen shall have prior approval of the use of said counsel or the
expenditure of said fees.
This indemnity agreement will be in addition to any liability which
Evergreen may otherwise have.
(c) Each party shall promptly notify the other party(ies) in writing of any
situation which presents or appears to involve a claim which may be the
subject of indemnification under this Agreement and the indemnifying party
shall have the option to defend against any such claim. In the event the
indemnifying party so elects, it shall notify the indemnified party and
shall assume the defense of such claim, and the indemnified party shall
cooperate fully with the indemnifying party, at the indemnifying party's
expense, in the defense of such claim. Notwithstanding the foregoing, the
indemnified party shall be entitled to participate in the defense of such
claim at its own expense through counsel of its own choosing. Neither party
shall admit to wrong-doing nor make any compromise in any action or
proceeding which may result in a finding of wrongdoing by the other party
without the other party's prior written consent. Any notice given by the
indemnifying party to an indemnified party or participation in or control of
the litigation of any such claim by the indemnifying party shall in no event
be deemed to be an admission by the indemnifying party of culpability, and
the indemnifying party shall be free to contest liability among the parties
with respect to the claim.
This section shall survive the expiration or termination of this Agreement.
14. The forbearance or neglect of any party to insist upon strict compliance by
another party with any of the provisions of this Agreement, whether
continuing or not, or to declare a forfeiture of termination against the
other parties, shall not be construed as a waiver of any of the rights or
privileges of any party hereunder. No waiver of any right or privilege of
any party arising from any default or failure of performance by any party
shall affect the rights or privileges of the other parties in the event of a
further default or failure of performance.
15. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of Massachusetts, without respect to
its choice of law provisions and in accordance with the 1940 Act. In the
case of any conflict, the 1940 act shall control.
16. Each party hereby represents and warrants to the other that the persons
executing this Agreement on its behalf are duly authorized and empowered to
execute and deliver the Agreement and that the Agreement constitutes its
legal, valid and binding obligation, enforceable against it in accordance
with its terms. Except as particularly set forth herein, neither party
assumes any responsibility hereunder, and will not be liable to the other
for any damage, loss of data, delay or any other loss whatsoever caused by
events beyond its reasonable control.
17. Nationwide acknowledges that the identity of Evergreen's (and its
affiliates' and/or subsidiaries') customers and all information maintained
about those customers constitute the valuable property of Evergreen.
Nationwide agrees that, should it come into contact or possession of any
such information (including, but not limited to, lists or compilations
of the identity of such customers), Nationwide shall hold such information
or property in confidence and shall not use, disclose or distribute any
such information or property except with Evergreen's prior written consent
or as required by law or judicial process.
Evergreen acknowledges that the identity of Nationwide's (and its
affiliates' and/or subsidiaries') customers and all information maintained
about those customers constitute the valuable property of Nationwide.
Evergreen agrees that, should it come into contact or possession of any
such information (including, but not limited to, lists or compilations of
the identity of such customers), Evergreen shall hold such information or
property in confidence and shall not use, disclose or distribute any such
information or property except with Nationwide's prior written consent
or as required by law or judicial process.
This section shall survive the expiration or termination of this Agreement.
18. Nothing in this Agreement shall be deemed to create a partnership or joint
venture by and among the parties hereto.
19. This Agreement supersedes any and all prior Fund Participation Agreements
made by and between the parties.
20. Except to amend Exhibit A, or as otherwise provided in this Agreement, this
Agreement may not be amended or modified except by a written amendment
executed by each of the parties.
21. This Agreement shall be binding upon and inure to the benefit of the
parties' respective successors.
22. This Agreement may be executed by facsimile signature and it may be executed
in one or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
NATIONWIDE LIFE INSURANCE COMPANY
AND NATIONWIDE LIFE AND ANNUITY
INSURANCE COMPANY
/S/ Joseph P. Rath
----------------------------
Date: 12/16/98 By: Joseph P. Rath
Title: Vice President
Office of Product and Market
Compliance
EVERGREEN VARIABLE ANNUITY TRUST
AND EVERGREEN EQUITY TRUST ON THEIR
BEHALF AND ON BEHALF OF THE
PORTFOLIOS SET FORTH IN EXHIBIT A
/s/ Michael H. Koonce
------------------------------
Date: 12/22/98 By: Michael H. Koonce
Title: Secretary
<PAGE>
EXHIBIT A
This Exhibit corresponds to the Fund Participation
Agreement dated December 16, 1998.
Variable Accounts Corresponding Corresponding Funds
of Nationwide Nationwide Contracts
- ------------------- --------------------- ----------------------------
Nationwide Variable -Deferred Variable Evergreen Variable Trust:
Account -6 Annuity Contracts Evergreen VA Aggressive
-Variable Life Growth Fund
Insurance Policies Evergreen VA Foundation Fund
Evergreen VA Fund
Evergreen VA Global Leaders
Fund
Evergreen VA Growth and Income
Fund
Evergreen VA International
Growth Fund
Evergreen VA Strategic
Income Fund
Evergreen Equity Trust:
Evergreen Small Cap Equity
Income Fund (Y Shares)
NACo Variable -Group Flexible Fund Evergreen Equity Trust:
Account Retirement Contracts Evergreen Income and Growth
Fund (Y Shares)
Nationwide DC -Group Flexible Fund Evergreen Equity Trust:
Variable Account Retirement Contracts Evergreen Income and Growth
Fund (Y Shares)
Nationwide Variable -Group Flexible Fund Evergreen Equity Trust:
Account Retirement Contracts Evergreen Income and Growth
Fund (Y Shares)
<PAGE>
Amendment No. 1 to Exhibit A
This Amendment No. 1 corresponds to the Fund Participation Agreement
dated December 16, 1998.
Variable Accounts Corresponding Corresponding Funds
of Nationwide Nationwide Contracts
- ------------------- ---------------------- ----------------------------
Nationwide Variable -Deferred Variable Evergreen Variable Trust:
Account -6 Annuity Contracts Evergreen VA Aggressive
-Variable Life Growth Fund
Insurance Policies Evergreen VA Foundation
Fund
Evergreen VA Fund
Evergreen VA Global Leaders
Fund
Evergreen VA Growth and
Income Fund
Evergreen VA International
Growth Fund
Evergreen VA Strategic
Income Fund
Evergreen VA Masters Fund
Evergreen Equity Trust:
Evergreen Small Cap Equity
Income Fund (Y Shares)
NACo Variable -Group Flexible Fund Evergreen Equity Trust:
Account Retirement Contracts Evergreen Income and Growth
Fund (Y Shares)
Nationwide DC -Group Flexible Fund Evergreen Equity Trust:
Variable Account Retirement Contracts Evergreen Income and Growth
Fund (Y Shares)
Nationwide Variable -Group Flexible Fund Evergreen Equity Trust:
Account Retirement Contracts Evergreen Income and Growth
Fund (Y Shares)
IN WITNESS WHEREOF, the parties hereto cause this Amendment No. 1 to Fund
Participation Agreement to be executed as of the date(s) set forth below:
NATIONWIDE LIFE INSURANCE COMPANY
AND NATIONWIDE LIFE AND ANNUITY
INSURANCE COMPANY
/s/ Joseph P. Rath
-------------------------
Date: 12/23/98 By: Joseph P. Rath
Title: Vice President
Office of Product and
Market Compliance
EVERGREEN VARIABLE ANNUITY TRUST
AND EVERGREEN EQUITY TRUST ON THEIR
BEHALF AND ON BEHALF OF THE
PORTFOLIOS SET FORTH IN EXHIBIT A
/s/ Michael H. Koonce
----------------------------
Date: 12/30/98 By: Michael H. Koonce
Title: Secretary
PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and between, Evergreen Equity Trust, a Delaware
trust, and such other funds or portfolios of series-type mutual funds set forth
on Schedule A attached hereto as amended from time to time, ("FUND") and The
Variable Annuity Life Insurance Company ("VALIC"), a life insurance company
organized under the laws of the State of Texas, on its own behalf and on behalf
of each segregated asset account set forth on Schedule B hereto as amended from
time to time (each such account hereinafter referred to as "ACCOUNT").
WHEREAS, FUND is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 (the "1940 Act") as an
open-end, diversified, management investment company; and
WHEREAS, FUND shares are issued to the general public and to the separate
accounts of insurance companies ("Participating Insurance Companies") to fund
variable insurance products and certain qualified pension and retirement plans;
and
WHEREAS, VALIC has established ACCOUNT to offer variable contracts (the
"Contracts") which VALIC has registered under the Securities Act of 1933, as
amended (the "1933 Act"), and is desirous of having FUND as one of the
underlying funding vehicles for the Contracts; and
WHEREAS FUND knows of no reason why FUND shares may not be sold to
Participating Insurance Companies to fund variable insurance products and
qualified pension and retirement plans; and
WHEREAS, VALIC intends to purchase shares of other open-end, management
investment companies that offer shares to the general public to fund the
Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, VALIC intends to purchase shares of FUND to fund the Contracts and
FUND is or will be authorized to sell such shares to VALIC at net asset value;
WHEREAS, VALIC and affiliates of VALIC will provide subcustodian, record
keeping, account maintenance and/or other administrative services for Contract
owners and participants, employee benefit plans and participants, and other
investors;
NOW, THEREFORE, in consideration of their mutual promises, VALIC and FUND
agree as follows:
1. FUND agrees to make FUND shares available for purchase by VALIC and
ACCOUNT at the applicable net asset value per share on those days on which FUND
calculates its net asset value pursuant to SEC rules. FUND shall use reasonable
efforts to calculate such net asset value on each day which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the FUND may refuse
to sell shares to any person, or suspend or terminate the offering of shares, if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the FUND acting in good faith and in light of
its fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of the FUND.
2. Issuance and transfer of FUND's shares will be by book entry only. Stock
certificates will not be issued to VALIC or ACCOUNT. Shares ordered from FUND
will be recorded in an appropriate title for ACCOUNT or the appropriate
subaccount of ACCOUNT.
3. FUND shall furnish same day notice (by wire, telecopier, or telephone
followed by written confirmation) to VALIC of any income, dividends or capital
gain distributions payable on FUND's shares. VALIC hereby elects to receive all
such income, dividends and capital gain distributions of a FUND in the form of
additional shares of that FUND. VALIC reserves the right to revoke this election
and to receive all such income, dividends and capital gain distributions in
cash. FUND shall notify VALIC of the number of shares so issued as payment of
such dividends and distributions.
4. (a) FUND agrees to sell to VALIC shares of the FUND which VALIC orders,
executing such orders on a daily basis at the net asset value next computed
after receipt by FUND or its designee in proper form of the order for the shares
of FUND. For purposes of this Section 4(a), VALIC shall be the designee of FUND
for receipt of such orders from VALIC and receipt by such designee shall
constitute receipt by FUND; provided that FUND receives notice of such order by
9:00 a.m. Eastern time on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which FUND calculates its net asset value pursuant to the rules of the SEC.
"Proper form" means that amounts to be invested or redeemed are identified on
VALIC's computer system by Participant, Contract and Fund in accordance with
VALIC's standard procedures for processing transactions (which comply with
procedures and form in FUND's prospectus).
(b) FUND agrees to redeem for cash (or in kind to the limited extent
disclosed in the Fund's prospectus), on VALIC's request, any full or fractional
shares of FUND held by VALIC, executing such requests on a daily basis at the
net asset value next computed after receipt by FUND or its designee of the
request for redemption in proper form. FUND shall not bear any responsibility
whatsoever for the proper disbursement to Contract Participants or crediting
redemption proceeds to Contract Participants; VALIC alone shall be responsible
for such actions. For purposes of this Section 4(b), VALIC shall be the designee
of FUND for receipt of requests for redemption from VALIC and receipt by such
designee shall constitute receipt by FUND; provided that FUND receives notice of
such request for redemption by 9:00 a.m. Eastern time on the next following
Business Day.
(c) FUND shall make the net asset value per share available to VALIC on
a daily basis as soon as reasonably practical after the net asset value per
share is calculated but shall use its best efforts to make such net asset value
available by 6:30 p.m. Eastern time. If FUND provides VALIC with the incorrect
share net asset value information through no fault of VALIC, VALIC on behalf of
the Separate Accounts, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct share net asset value. Any
error in the calculation of net asset value, dividend and capital gain
information greater than the materiality standard set by the SEC shall be
reported to VALIC immediately upon discovery.
(d) If VALIC requests the purchase of FUND shares, VALIC shall pay for
such purchase by wiring federal funds to FUND or its designated custodial
account on the day the order is transmitted by VALIC. If VALIC requests a net
redemption resulting in a payment of redemption proceeds to VALIC (VALIC shall
use its best efforts to pre-notify the FUND of any large trades), FUND shall
wire the redemption proceeds to VALIC on the day the order is transmitted by
VALIC, unless doing so would require FUND to dispose of portfolio securities or
otherwise incur additional costs, but in such event, proceeds shall be wired to
VALIC within three business days and FUND shall notify the person designated in
writing by VALIC as the recipient for such notice of such delay by 3:00 p.m.
Eastern time the same Business Day that VALIC transmits the redemption order to
FUND. If VALIC's order requests the application of redemption proceeds from the
redemption of shares of one FUND to the purchase of shares of another FUND, FUND
shall so apply such proceeds no later than the next Business Day that VALIC
transmits such order to FUND.
5. (a) FUND shall provide VALIC with as many copies of FUND's current
prospectus as VALIC may reasonably request. If requested by VALIC in lieu
thereof, FUND shall provide such documentation (including a copy of the new
prospectus in computer form) and other assistance as is reasonably necessary in
order for VALIC once each year (or more frequently if the prospectus for FUND is
amended) to have the prospectuses for the Contracts and for the FUND printed
together in one document. FUND shall provide VALIC with as many copies of any
prospectus supplement as VALIC may reasonably request.
(b) Unless otherwise provided herein, all parties to this Agreement
shall bear all expenses incident to the performance of their respective duties
under this Agreement. FUND will bear the printing costs (or duplicating costs
with respect to the statement of additional information) and mailing costs
associated with the delivery, to the extent legally required, of the following
FUND (or individual portfolio) documents, and any supplements thereto, to
existing variable contract owners of VALIC:
(i) prospectuses and statements of additional information;
(ii) annual and semi-annual reports; and
(iii) proxy materials.
VALIC will submit any bills for printing, duplicating and/or mailing costs,
relating to FUND documents described above, to FUND for reimbursement by FUND.
VALIC shall monitor such costs and shall use its best efforts to control these
costs. VALIC will provide FUND on a semi-annual basis, or more frequently as
reasonably requested by FUND, with a current tabulation of the number of
existing variable contract owners of VALIC whose variable contract values are
invested in FUND. This tabulation will be sent to FUND in the form of a letter
signed by a duly authorized officer of VALIC attesting to the accuracy of the
information contained in the letter.
(c) At its expense FUND will provide VALIC with the following FUND
documents, and any supplements thereto, with respect to prospective variable
contract owners of VALIC:
(i) camera ready copy of the current prospectus for printing by
VALIC;
(ii) a copy of the statement of additional information suitable
for duplication;
(iii) camera ready copy of proxy material suitable for printing;
and
(iv) camera ready copy of the annual and semi-annual reports for
printing by VALIC.
(d) FUND shall not bear any costs of preparing, printing, recording,
taping or disseminating VALIC sales literature or other VALIC promotional
materials or the costs of mailing prospective Contract Participants copies of
FUND prospectus, statement of additional information, periodic reports or other
printed materials.
(e) FUND shall bear the costs of printing FUND prospectus, statement of
additional information, periodic reports or other printed materials associated
with the FUND.
(f) VALIC will bear the costs of registering and qualifying the Accounts
for sale, printing (or duplicating costs with respect to the statement of
additional information) mailing costs associated with the delivery of the
ACCOUNT's current prospectuses and statements of additional information, annual
and semi-annual reports, Contracts, Contract applications, sales literature or
other promotional material, ACCOUNT sponsored proxy materials and voting
solicitation instructions.
6. (a) VALIC will furnish, or will cause to be furnished, to FUND or its
designee, each piece of sales literature or other promotional material in which
FUND or the adviser of any of the Portfolios of the FUND is named at least
fifteen days prior to its intended use. No such material will be used if FUND or
its designee objects to its use in writing within ten days after receipt of such
material.
(b) FUND or its designee will furnish, or will cause to be furnished, to
VALIC, each piece of sales literature or other promotional material in which
VALIC is named at least fifteen days prior to its intended use. No such material
will be used if VALIC objects to its use in writing within ten days after
receipt of such material.
(c) FUND and its affiliates and agents shall not give any information or
make any representations on behalf of VALIC or concerning VALIC, ACCOUNT, or the
Contracts issued by VALIC, other than the information or representations
contained in a registration statement or prospectus for such Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for ACCOUNT or prepared for distribution to owners of the
Contracts, or in sales literature or other promotional material approved by
VALIC or its designee, except with the permission of VALIC.
(d) VALIC and its affiliates and agents shall not give any information
or make any representations on behalf of FUND or its advisers or concerning FUND
or its advisers other than the information or representations contained in a
registration statement or prospectus for FUND, as such registration statement
and prospectus may be amended or supplemented from time to time, or in sales
literature or other promotional material approved by FUND or its designee,
except with the permission of FUND.
(e) For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use, in
a newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, computer
facility or service including the Internet, or other public media), sales
literature (such as any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or excerpts or
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. ("NASD")
rules or the 1933 or 1940 Acts. Notwithstanding the foregoing, the fifteen-day
notice requirement of this Section 6 does not apply to FUND registration
statements, prospectuses, statements of additional information, reports to
shareholders, proxy materials, and any other document filed with the SEC,
provided that the reference to VALIC in those documents is limited to: (1)
disclosing that VALIC and ACCOUNT are shareholders of FUND; (2) information
about the amount of shares held by VALIC and ACCOUNT; (3) disclosing that VALIC
purchased seed money shares and information about those shares; and (4) basic
information about VALIC such as its address and state of organization.
(f) VALIC will bear the responsibility and correlative expense for
administration and support services for Contract Participants. FUND recognizes
VALIC as the sole shareholder of shares of FUND issued under this Agreement.
(g) VALIC agrees and acknowledges that one of FUND's advisors, Evergreen
Asset Management Corp., is the sole owner of the name and mark "Evergreen" and
that all use of any designation comprised in whole or in part of Evergreen (an
"Evergreen Mark") under this Agreement shall inure to the benefit of Evergreen
Asset Management Corp. VALIC shall not use any Evergreen Mark on its own behalf
or on behalf of the ACCOUNTS or Contracts without prior written consent of
Evergreen Asset Management Corp. Upon termination of this Agreement for any
reason, VALIC shall cease all use of any Evergreen Mark as soon as practicable.
7. Compensation and Expenses. In consideration of its providing the
administrative and record-keeping services below, VALIC shall be entitled to
receive from the FUND the fees set forth in Exhibit C hereto. The obligation of
FUND to pay VALIC fees and expenses shall continue, notwithstanding the
termination of this Agreement, as long as the ACCOUNT holds shares of the FUNDS
on behalf of any Contract owner. The administrative and record-keeping services
include but are not limited to:
(a) responding to inquiries from Contract owners using one or more of
the FUNDs as an investment vehicle regarding the services performed by VALIC as
they relate to a FUND;
(b) providing information to FUND and to Contract owners with respect to
shares attributable to Contract owner accounts;
(c) developing and maintaining a means of identifying and analyzing
information relating to contract owners using one or more of the FUNDS as an
investment vehicle through computer databases or similar approaches;
(d) printing and mailing of shareholder communications from each FUND as
may be required;
(e) serving as the designee of the FUND for the receipt of orders to
purchase and redeem shares of the FUND pursuant to Section 4;
(f) cooperating with the FUND, its service agents and governmental
authorities in connection with the regulation of the FUNDS and the sale of the
shares of the FUNDS;
(g) providing data and materials to the FUND needed to maintain the
compliance of the FUND with the securities laws; and
(h) communicating directly with Contract owners concerning FUND
operations. FUND shall pay all reasonable out-of-pocket expenses actually
incurred by VALIC in connection with the transfer of proxy statements and
reports to shareholders.
8. (a) Except as limited by and in accordance with the provisions of
Sections 8(b) and 8(c) hereof, VALIC agrees to indemnify and hold harmless FUND
and each trustee, officer, employee or agent of FUND and each person, if any,
who controls FUND within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of VALIC) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale, acquisition or redemption of FUND's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus or sales literature for the Contracts or
contained in the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to VALIC by or on behalf of FUND for use
in the registration statement or prospectus for the Contracts or in
the Contracts or sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the Contracts or
FUND shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of FUND not supplied by
VALIC, or persons under its control) or wrongful conduct of VALIC or
persons under its control, with respect to the sale or distribution
of the Contracts or FUND shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature of FUND, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to FUND by or on behalf of
VALIC; or
(iv) arise as a result of (1) a failure by VALIC to substantially provide
the services and furnish the materials under the terms of this
Agreement; or (2) a failure by VALIC to register the Contracts under
the 1933 Act; or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by VALIC in this
Agreement or arise out of or result from any other material breach
of this Agreement by VALIC; or
(vi) arise out of or result from the fact that the Contracts are invested
in shares of regulated investment companies that are also available
without limitation to investors from the general public; or
(vii) arise out of or result from negligence or wrongful conduct in
VALIC's administration of the ACCOUNTS or the Contracts.
(b) VALIC shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party is subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to FUND.
(c) VALIC shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified VALIC in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify VALIC of any such claim shall not relieve VALIC
from any liability for indemnification which it may have to the Indemnified
Party against whom such action is brought other than that liability which may
have been incurred solely as a result of the failure to give notice. In case any
such action is brought against an Indemnified Party, VALIC shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from VALIC to such party of VALIC's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and VALIC will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
9. (a) Except as limited by and in accordance with the provisions of
Sections 9(b) and 9(c), FUND agrees to indemnify and hold harmless VALIC and
each of its directors and officers and each person, if any, who controls VALIC
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 9) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of FUND) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of FUND's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of FUND (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to
FUND or its adviser by or on behalf of VALIC for use in the
registration statement or prospectus for FUND or in sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or FUND shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not
supplied by FUND or its adviser or persons under their control) or
wrongful conduct of FUND or persons under its control, with respect
to the sale or distribution of the Contracts or FUND shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to VALIC by or on
behalf of FUND; or
(iv) arise as a result of (1) a failure by FUND to substantially provide
the services and furnish the materials under the terms of this
Agreement; (2) a failure by FUND to qualify as a Regulated
Investment Company under Subchapter M of the Code; or (3) a failure
by FUND to register its shares but only if such registration is
required in those states where the FUND is subject to the state
securities commission; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by FUND in the Agreement or
arise out of or result from any other material breach of this
Agreement by FUND; or
(vi) arise out of or result from negligence or wrongful conduct in FUND's
administration of FUND shares.
(b) FUND shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party is subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to VALIC or to the
ACCOUNT.
(c) FUND shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified FUND in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify FUND of any such claim shall not relieve FUND from
any liability for indemnification which it may have to the Indemnified Party
against whom such action is brought other than that liability which may have
been incurred solely as a result of the failure to give notice. In case any such
action is brought against the Indemnified Parties, FUND shall be entitled to
participate at its own expense in the defense thereof. FUND also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from FUND to such party of FUND 's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and FUND will not be liable
to such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) VALIC agrees to notify FUND promptly of the commencement of any
litigation or proceedings that impact the FUND, against VALIC or any of its
officers or directors in connection with the issuance or sale of the Contracts,
the operation of the ACCOUNTS or the sale or acquisition of shares of the FUND.
10. FUND represents and warrants that FUND shares sold pursuant to this
Agreement shall be registered under the 1933 Act and duly authorized for
issuance, and shall be issued, in compliance in all material respects with
applicable law, and that FUND is and shall remain registered under the 1940 Act
for so long as required thereunder. FUND further represents and warrants that
FUND qualifies as a Regulated Investment Company under Subchapter M of the Code,
and will make every effort to maintain such qualification (under Subchapter M or
any successor or similar provisions) and that FUND will notify VALIC immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future. FUND will register and qualify its
shares for sale in accordance with the laws of the various states as may be
required by law in those states where this FUND is subject to the jurisdiction
of the state securities commission. FUND makes no representations or warranties
as to whether any aspect of its operations (including, but not limited to, fees,
expenses and investment policies) complies or will comply with the insurance
laws or insurance regulations of the various states. FUND further represents and
warrants that all of its directors, officers, employees, investment advisers,
and other individuals/entities dealing with the money or securities of the FUND
are and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the FUND in an amount not less than the
minimal coverage as required by Rule 17g-1 under the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
11. VALIC represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established ACCOUNT as a segregated asset account under Texas law and
has registered ACCOUNT as a unit investment trust under the 1940 Act. VALIC
represents and warrants that the Contracts are or will be registered under the
1933 Act and that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws and that the sale
of the Contracts shall apply in all material aspects with state insurance
suitability requirements were applicable. VALIC will notify FUND immediately
upon having a reasonable basis for believing that the ACCOUNT or Contracts have
ceased to qualify as segregated accounts or variable annuity contracts for
relevant diversification purposes. VALIC represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
described in Rule 17g-1 under the 1940 Act, that deal with the money and/or
securities of the FUND, are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of FUND, in the amount
not less than the Rule requires. The aforesaid bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
12. FUND will provide VALIC with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications which disclose the
relationship of the FUND and VALIC or which may have an effect upon the FUND's
relationship with VALIC, and all amendments or supplements to any of the above
that relate to the FUND promptly after the filing of each such document with the
SEC or other regulatory authority. VALIC will provide FUND or its designee with
at least one complete copy of all prospectuses, statements of additional
information, annual and semi-annual reports, solicitation for voting
instructions, proxy statements, pieces of sales literature and other promotional
material, exemptive applications, requests for no-action relief, and all
amendments or supplements to any of the above in which FUND or its advisers are
named, that relate to ACCOUNT or Contracts, contemporaneously with the filing of
each document with the SEC, NASD or other regulatory authority.
13. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
14. VALIC will provide pass-through voting privileges to all Contract
owners so long as the Commission continues to interpret the 1940 Act as
requiring pass-through voting privileges for variable contract owners.
Accordingly, VALIC will solicit voting instructions from Contract Participants
and vote shares of FUND held in ACCOUNT in a manner consistent with voting
instructions timely-received from Contract owners. VALIC will vote shares of
FUND held in ACCOUNT for which no voting instructions from Contract owners are
timely-received, as well as shares of FUND which VALIC itself owns, in the same
proportion as those shares of FUND for which voting instructions from Contract
owners are timely-received. Participating Insurance Companies will be
responsible for assuring that each of their separate accounts participating in
FUND calculates voting privileges in a manner consistent with other
Participating Insurance Companies.
15. FUND agrees to comply with any applicable state insurance laws or
regulations, including cooperating with VALIC in any filings of sales literature
for the Contracts, to the extent notified thereof in writing by VALIC, unless
such compliance is deemed by FUND to be unduly burdensome, in which event any
Party may exercise its option to terminate this Agreement under Section 16
hereof, except that such termination shall be effective immediately.
16. (a) This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
(b) This Agreement shall terminate automatically in the event of its
assignment unless such assignment is made with the written consent of VALIC and
FUND.
(c) This Agreement shall terminate without penalty at the option of the
terminating party in accordance with the following provisions:
(i) At the option of VALIC or FUND at any time from the date hereof
upon 90 days' advance written notice, unless a shorter time is
agreed to by the parties;
(ii) At the option of VALIC if FUND shares are not reasonably available
to meet the requirements of the Contracts, provided however, that
such a termination shall apply only to the series of FUND not
reasonably available and FUND shall have thirty (30) days from
initial notification by VALIC of the deficiency to correct such
deficiency. Thereafter, prompt written notice of the election to
terminate shall be furnished by VALIC and termination shall be
effective ten days after FUND's receipt of said notice;
(iii) At the option of VALIC, upon the institution of formal proceedings
against FUND by the SEC, the NASD, or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which
would, in VALIC'S reasonable judgment exercised in good faith,
materially impair FUND'S ability to meet and perform FUND'S
obligations and duties hereunder. Prompt notice of election to
terminate under this paragraph shall be furnished by VALIC with
said termination to be effective upon receipt of notice;
(iv) At the option of FUND, upon the institution of formal proceedings
against VALIC by the SEC, the NASD, or any other regulatory body,
the expected or anticipated ruling, judgement or outcome which
would, in FUND'S reasonable judgment, materially impair VALIC'S
ability to meet and perform its obligations and duties hereunder.
Prompt notice of election to terminate under this paragraph shall
be furnished by FUND with said termination to be effective upon
receipt of notice;
(v) At the option of FUND, if (1) FUND shall determine in its sole
judgment reasonably exercised in good faith, that VALIC has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and such
material adverse change or material adverse publicity is likely to
have a material adverse impact upon the operation or business
reputation of FUND, (2) FUND shall notify VALIC in writing of such
determination and its intent to terminate this Agreement, and (3)
after consideration of the actions taken by VALIC and any other
changes in circumstances since the giving of such notice, the
determination of FUND shall continue to apply on the sixtieth
(60th) day since giving of such notice, then such sixtieth day
shall be the effective date of termination;
(vi) At the option of VALIC after having been notified by FUND of a
termination or proposed termination of the Investment Advisory
Agreement between FUND or its successors, which notice FUND shall
provide promptly to VALIC, the effective date of termination of the
Agreement to be as determined by VALIC;
(vii) In the event FUND's shares are not registered, issued or sold in
accordance with applicable federal law, or such law precludes the
use of such shares of the FUND as the underlying investment medium
of the Contracts issued or to be issued by VALIC. Prompt notice of
election to terminate under this paragraph shall be furnished by
VALIC with said termination to be effective upon receipt of notice;
(viii) At the option of FUND upon a reasonable determination by the Board
in good faith that it is no longer advisable and in the best
interests of shareholders for FUND to continue to operate pursuant
to this Agreement. Prompt notice of election to terminate under
this paragraph shall be furnished by FUND with said termination to
be effective upon receipt of notice;
(ix) At the option of FUND if the Contracts cease to qualify as annuity
contracts or life insurance contracts, as applicable, under the
Code, or if FUND reasonably believes that the Contracts may fail to
so qualify. Prompt notice of election to terminate under this
paragraph shall be furnished by FUND with said termination to be
effective upon receipt of notice;
(x) At the option of VALIC, upon FUND'S breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of VALIC within thirty (30) days after written notice
of such breach is delivered to FUND;
(xi) At the option of FUND, upon VALIC's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of FUND within ten days after written notice of such
breach is delivered to VALIC;
(xii) At the option of FUND, if the variable contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law. Prompt notice of election to terminate under this
paragraph shall be furnished by FUND with said termination to be
effective upon receipt of notice;
(xiii) At the option of VALIC, if (1) VALIC shall determine, in its sole
judgment reasonably exercised in good faith, that FUND is the
subject of material adverse publicity and such material adverse
publicity is likely to have a material adverse impact on the sale
of the Contracts and/or the operations or business reputation of
VALIC, (2) VALIC shall have notified FUND in writing of such
determination and its intent to terminate this Agreement, and, (3)
after consideration of the actions taken by FUND and any other
changes in circumstances since the giving of such notice, the
determination of VALIC shall continue to apply on the sixtieth
(60th) day since giving of such notice, then such sixtieth day
shall be the effective date of termination;
(xiv) At the option of VALIC, if VALIC shall determine that it is no
longer advisable and in the best interests of Contract owners to
utilize the FUND as underlying investment vehicle and VALIC
determines to substitute the shares of another investment company
for the corresponding shares of FUND in accordance with the terms
of the Contracts for which those shares had been selected to serve
as the underlying investment media.
(d) No termination of this Agreement shall be effective unless and until
the party terminating this Agreement gives prior written notice to all other
parties to this Agreement of its intent to terminate, which notice shall set
forth the basis for such termination.
(e) Notwithstanding any termination of this Agreement pursuant to Section
16(c) hereof, at the election of VALIC, FUND shall continue to make available
additional FUND shares, as provided below, pursuant to the terms and conditions
of this Agreement, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if VALIC elects to have FUND make additional
shares available, the owners of the Existing Contracts or VALIC, whichever shall
have legal authority to do so, shall be permitted to reallocate investments in
FUND, redeem investments in FUND and/or invest in FUND upon the payment of
additional premiums under the Existing Contracts. In the event of a termination
of this Agreement pursuant to Section 16(c) hereof, VALIC, as promptly as is
practicable under the circumstances, shall notify FUND whether VALIC shall elect
to continue to have FUND shares made available after such termination. If FUND
shares continue to be made available after such termination, the provisions of
this Agreement shall remain in effect and thereafter either FUND or VALIC may
terminate the Agreement, as so continued pursuant to this Section 16(e), upon
prior written notice to the other party such notice to be for a period that is
reasonable under the circumstances. In determining whether to elect to continue
to have additional FUND shares made available, VALIC shall act in good faith,
giving due consideration to the interests of existing shareholders, including
holders of Existing Contracts. Notwithstanding the foregoing, FUND shall not be
required to make available additional FUND shares if doing so would be
prohibited by law. VALIC and FUND agree that this Section 16(e) shall not apply
to any termination under Sections 8 or 9.
(f) VALIC shall not redeem FUND shares attributable to Contract except (i)
as necessary to implement Contract Participant initiated transactions, or (ii)
as required by state and/or federal laws or regulations or judicial or other
legal precedent of general application. Upon request, VALIC will promptly
furnish to FUND the opinion of counsel for VALIC to the effect that any
redemption pursuant to clause (ii) above is a legally required redemption.
Furthermore, VALIC shall not prevent new Contract Participants from allocating
payments to FUND that formerly was available under the Contracts without first
giving FUND ninety (90) days notice of its intention to do so.
17. Potential Conflicts.
(a) The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. A material irreconcilable conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory or other authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Trustees shall promptly inform the VALIC if
they determine that a material irreconcilable conflict exists and the
implications thereof. The Trustees shall have sole authority to determine
whether a material irreconcilable conflict exists and their determination shall
be binding upon the VALIC.
(b) VALIC agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. VALIC will assist the Trustees
in carrying out their responsibilities under the Shared Trust Exemptive Order
and this Section 17 by providing the Trustees with all information reasonably
necessary for them to consider any issues raised including, but not limited to,
information as to a decision by the VALIC to disregard Contract Participant
voting instructions.
(c) If it is determined by a majority of the Trustees, or a majority
of the disinterested Trustees, that a material irreconcilable conflict exists
that affects the interest of Contract Participants, VALIC shall, in cooperation
with other Participating Insurance Companies whose contract owners are also
affected, at its expense and to the extent reasonably practicable (as determined
by the Trustees) take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps could include: (a) withdrawing the
assets allocable to some of the Accounts from the Trust or any portfolio and
reinvesting such assets in a different investment medium, including (but not
limited to) another portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract Participants and, as appropriate, segregating the assets of any
appropriate group (i.e. annuity contract owners, life insurance contract owners,
variable annuity contract owners, or variable life insurance contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract Participants the option of
making such change; and (b) establishing a new registered management investment
company or managed separate account and obtaining any necessary approvals or
orders of the Commission in connection therewith.
(d) If any material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to VALIC conflicts
with the majority of other state regulators, then VALIC will withdraw the
aff3ected ACCOUNT investment in the Trust and terminate this Agreement with
respect to such ACCOUNT within six (6) months after the Trust gives written
notice that it has determined that such decision has created a material
irreconcilable conflict; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by VALIC for the purchase and redemption of shares of the
Trust.
(e) For purposes of (c) and (d) of this Section 17 of this Agreement,
a majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict. VALIC shall not
be required by (c) of this Section 17 to establish a new funding medium for the
Contracts if any offer to do so has been declined by a vote of a majority of
Contract Participants materially adversely affected by the material
irreconcilable conflict. In the event that the Trustees determine that any
proposed action does not adequately remedy any material irreconcilable conflict,
then VALIC will withdraw the ACCOUNT's investment in the Trust and terminate
this Agreement within six (6) months after the Trust gives written notice of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict, as determined by a majority of the disinterested Trustees.
(f) VALIC shall at least annually submit to the submit to the Trustees
such reports, materials or data as the Trustees may reasonably request so that
the Trustees may fully carry out the duties imposed upon them by the Shared
Trust Exemptive Order and this Section 17. Said reports, materials and data
shall be submitted more frequently if deemed appropriate by the Trustees.
(g) If and to the extent that Rule 6e-2 and Rule 6e- (T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed and/or shared
funding (as defined in the Shared Trust Exemptive Order) on terms and conditions
materially different from those contained in the Shared Trust Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-
3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
(h) If a material irreconcilable conflict arises because of a decision
by VALIC to disregard Contract Participant voting instructions as set forth in
Section 14 of this Agreement, and that decision represents a minority position
or would preclude a majority vote, VALIC may be required, at the Trust's
election, to withdraw the affected ACCOUNT's investment in the Trust and
terminate this Agreement with respect to such ACCOUNT; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this provision
is being implemented. Until the end of such six (6) month period, the Trust
shall continue to accept and implement orders by VALIC for the purchase and
redemption of share of the Trust.
18. Any notice shall be sufficiently given when sent by registered or
certified mail (return receipt requested) to the other party at the address of
such party set forth below or at such other address as such party may from time
to time specify in writing to the other party.
If to FUND:
Evergreen Funds
200 Berkeley Street
Boston, MA 02116-9000
Attn: Legal Department
If to VALIC:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, TX 77019
Attn: Nori L. Gabert
19. Confidentiality. Each party agrees that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
be kept confidential and shall not be voluntarily disclosed to any other person,
except as may be required by law. This provision shall survive the termination
of this Agreement.
20. This Agreement shall be subject to the provisions of the 1933 Act ,
1934 Act and 1940 Act and the rules and regulations thereunder, including any
exemptive relief therefrom and the orders of the SEC setting forth such relief.
21. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
22. If any provisions of this Agreement shall be held or made invalid by a
court, decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
23. The rights, remedies and obligations contained in this agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled under state and
federal law.
24. The Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns; provided that no party may
assign this Agreement without prior written consent of the others.
25. This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one instrument.
Executed this 4th day of January, 1999.
Evergreen Equity Trust
Attest:/s/ Beth Werths By:/s/ Michael H. Koonce
The Variable Annuity Life
Insurance Company
Attest:/s/ Cynthia A. Toles By:/s/ Thomas L. West, Jr.
<PAGE>
SCHEDULE A
Funds
Evergreen Small Cap Equity Income Fund - Class A
Evergreen Value Fund - Class A
Evergreen Growth and Income Fund - Class A
<PAGE>
SCHEDULE B
Accounts
--------
Name Date Established
- ---- ----------------
The Variable Annuity Life Insurance Company April 18, 1979
Separate Account A
Contracts
---------
Standard Form Number Name
- -------------------- -----
UITG-194
Group Fixed and Variable
Deferred Annuity Contract
UIT-194
Individual Fixed and Variable
Deferred Annuity Contract
UITN-194
Individual Fixed and Variable
Nonqualified Deferred Annuity
Contract
UIT-IRA-194
Individual Fixed and Variable
Deferred Retirement Annuity
Contract
IRA-SEP-194
Individual Fixed and Variable
Simplified Employee Pension
Annuity contract
UIT-SIMPLE-897
Individual Fixed and Variable
Deferred Simplified Retirement
Annuity Contract
<PAGE>
EXHIBIT C
FUND will pay VALIC the following asset-based Services fee computed daily and
payable quarterly on the aggregate net asset value of the shares of each FUND
maintained in accounts established with the FUND by VALIC:
12b-1 Fee
Fund Per Annum
- ---- ---------
Evergreen Small Cap Equity Income Fund - Class A 0.25%
Evergreen Value Fund - Class A 0.25%
Evergreen Growth and Income Fund - Class A 0.25%
